Market liquidity: Treasury bill yields fall slightly

Govt borrows more than the targeted amount.

KARACHI:

The government borrowed more than the targeted amount in a treasury bill auction held on Wednesday, but the key feature of the day was a slight fall in return on the bills, indicating ample liquidity in the market, data released by the State Bank of Pakistan (SBP) shows.

On behalf of the government, the central bank sold Rs180.36 billion treasury bills of three, six and 12-month maturities compared to the auction target of Rs150 billion. However, as expected by market analysts, yield on three-month bills came down to 13.48 per cent compared to 13.53 per cent in the previous auction held on June 1. For six-month bills, the yield dropped to 13.73 per cent from 13.76 per cent while 12-month papers stood unchanged at 13.91 per cent.

According to a research note issued by InvestCap Research, the treasury bill yields, after hitting new highs, appeared to be on the decline as the central bank had been trying to keep the money market liquid to bring down the yields.

InvestCap Head of Research Khurram Schehzad, in the research note, said the central bank was striving to keep the cost of debt servicing lower for the government by conducting frequent open market operations in the money market, which would lead to a gradual fall in secondary market yields. This would enable the government to focus more on banking and non-banking channels for borrowing to fund its fiscal deficit than the central bank.

In the budget for 2011-12, the government planned to fund 84 per cent (Rs715 billion) of the fiscal deficit through domestic channels.

Schehzad said some major banks were believed to have greater than conventional level of funds due to recent maturities of government papers and that also led to the decline in treasury bill yields.

Published in The Express Tribune, June 16th, 2011.