PTI govt borrows Rs58bn at relatively higher interest rate

Pakistan local currency bond yields rise 10 to 30 basis points in auction

Salman Siddiqui February 05, 2020

KARACHI: The cash-strapped government paid a higher rate of return to borrow Rs58 billion through auctions of 3-10 years Pakistan Investment Bonds (PIBs) to meet its budgetary requirements, as nine-year high inflation reading made the borrowing a costlier business on Tuesday.

“Pakistan local currency bond yields rises 10 to 30 basis points in auction today (Tuesday) after higher-than-expected inflation reading for the previous month of January 2020,” Topline Securities CEO Muhammad Sohail said in the post-auction comments.

The government accepted only Rs58 billion against the target of Rs100 billion in the auction. Participants in the auction, mostly the financial institutions like banks and insurance firms, had offered around Rs122 billion, the State Bank of Pakistan (SBP) reported. “If the government had accepted a higher amount it would have had to pay a greater rate of return than the one it offered today (Tuesday),” Arif Habib Limited Head of Research Samiullah Tariq told The Express Tribune.

The increase in rates does not necessarily signal a surge in the benchmark interest rate by the central bank, going forward, he said.

The rates the government paid in the auction were well in line with market expectations. “The government paid 11.1% on 10-year PIBs in the auction. It was almost close to 10-year PIB trading in the secondary market on Monday,” he said. The government may raise higher amount in later auctions as and when it receives bids for higher amount at comparatively lower rates, as inflation reading is expected to go down over the next two months; March and April, he said.

“The uptick in the rate is just a correction…the rates on PIBs are already 250-300 basis points lower than recent high and…compared to prevailing benchmark interest rate at 13.25%,” he said.

The cut-off yields went up by 30 basis points to 12.05% on three-year PIB, increased 21 basis points to 11.40% on five-year PIB and rose 10 basis points to 11% on 10-year PIB.

The SBP accepted Rs19 billion against bids of Rs40 billion in three-year PIB. It accepted Rs29 billion against bids of Rs48 billion in five-year PIB and lifted Rs10 billion against bids of Rs34 billion in 10-year PIB.

Tariq said insurance firms were apparently the participants who were mostly investing in PIB as they manage long-term assets in their portfolio.

Published in The Express Tribune, February 5th, 2020.

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