Govt obtains Rs1.67 trillion through treasury bill auctions

The most recent treasury bill auctions have allowed the government to obtain 1.67 trillion rupees from private banks and other institutions. As per reports, a staggering Rs1.67 trillion was secured from Pakistan Investment Bonds (PIBs) and Market Treasury Bills (MTBs) auctions that the State Bank of Pakistan (SBP) conducted on Wednesday.

For reference, treasury Bills are issued by the SBP on behalf of the government to raise funds. They are sold at a discounted price and generate a return when the government repays the full face value at maturity to the investor. For instance, if an investor buys a bill for 95 rupees, they receive 100 rupees at maturity, with the five-rupee difference being their profit.

The total submitted bids for the PIB auction reached a respectable 1,132.5 billion rupees, leading to an accepted bid value of Rs980.505 billion - which comprised competitive bids of Rs972 billion and non-competitive bids valued at Rs8.505 billion.

However, the two-year PIBs received no accepted bids in this round, while the five-year investment tenor managed to rake in Rs 16.903 billion at a cut-off rate of 96.8291. The auction leader was the 10-year PIB, which pulled in Rs 963.602 billion at the cut-off price of 92.6071.

Some believe that the reason behind investors choosing longer investment periods is the belief that interest rates will plummet even further, causing investors to prefer locking their funds in at current rates. Alternatively, a rise in investor confidence and the belief that the economy is stabilizing could have caused 10-year PIBs to attract such large investment amounts.

Conversely, concerns regarding the drop in interest rates seem to result in investors favouring short-run investments over locking funds over the medium run. Expectations of further interest rate cuts could be the reason behind this phenomenon as investors believe that interest rates will drop even lower in the coming months.

The State Bank of Pakistan received 1,084.95 billion rupees in MTB bids but chose to accept 689.768 billion rupees, which included 609.95 billion rupees from competitive processes and 29.818 billion rupees from non-competitive processes. The highest cut-off yield of 12.3898 percent appeared in the one-month MTBs, with 12-month MTBs receiving 12.01 percent and three-month MTBs finishing at 11.9999 percent.

Reports substantiate the aforementioned hypothesis as short-to medium-term tenors received stable investor sentiment, according to the measured weighted average yields that spanned between 11.8256 percent and 12.2483 percent.

As per reports, the banking sector demonstrates its dependency on government borrowing through its high demand for longer-dated PIBs, according to the recent results. This is not a new phenomenon as advance deposit ratios (ADR) have remained suboptimal in recent years - as banks remain hesitant to extend credit to the private sector.