KARACHI: The government raised Rs657 billion from the auction of market treasury bills on Wednesday, with yields mixed as higher inflation strengthened expectations that the central bank will keep interest rates unchanged at its upcoming policy review due this month.
The cut-off yield on the one-month T-bill fell 8 basis points (bps) to 11.3875 per cent. The three-month paper yield traded down 5 bps to 11.5992 per cent. The six-month note yield rose 10 bps to 11.89 per cent. However, the yield on the 12-month paper remained unchanged at 11.99 per cent.
The amount raised was lower than the pre-auction target of Rs800 billion. Total participation in the auction amounted to Rs2.774 trillion.The government raised Rs680 billion from this auction at face value.“The message from the auction is simple: demand was not the issue; price was,” said Saad Hanif, head of research at Ismail Iqbal Securities.
“Bidding was aggressive, and cut-offs were moving up, so the SBP accepted less than target,” Hanif said.“The clearest example is the 12-month, where filling the target would have meant paying 12.44 per cent, about 45bps above the previous cut-off and 48bps above the secondary market. Instead, the cut-off was held at 11.99 per cent, and the amount was left on the table,” he said.
“That looks like a deliberate call. With the policy rate at 11.5 per cent, banks want to be paid extra to lock in one-year money because the risks sit on the upside: firmer oil prices that will feed into the import bill and CPI, external financing needs that keep the rupee under watch, and the fiscal cost of terming out debt at these levels,” he added.
“Visibility is better at the short end, so clearing was easier there, and the 1-month cut-off came down 8bps. Until the inflation and oil picture settles, funding is likely to stay concentrated at the short end.”
The consumer price index rose 11.1 per cent year-on-year (YoY) in August, reinforcing expectations that the SBP will leave the policy rate unchanged at 11.5 per cent at its monetary policy meeting on September 14, according to analysts.
