SBP rejects triple the target bids in latest T-bills auction

The State Bank of Pakistan (SBP) rejected all bids in its recent auction of Treasury Bills (T-Bills) and Pakistan Investment Bonds (PIBs) held on Wednesday.

The decision came as the bids were submitted at previous cut-off yields, despite a recent reduction in interest rates by 200 basis points to 17.5%.

Market analysts suggest that the SBP’s decision underscores its commitment to ensuring that the new lower interest rates are reflected in the yields of government securities. The move is expected to influence future bidding strategies and align them with the central bank’s monetary policy objectives.

Investors placed total bids of PKR 1,425 billion, which is three times higher than the set target of PKR 475 billion.

The 12-month T-bills saw significant interest, with bids totaling PKR 925 billion, representing 65% of the total bid amount. For the three-month paper, bids amounted to PKR 222 billion, while six-month bids totaled PKR 279 billion.

An analyst at Arif Habib Limited said the bid pattern indicated that had the government decided to raise the target amount, the cut-off yields would have declined by 29-101 basis points.

The State Bank of Pakistan (SBP) plans to auction Pakistan Investment Bonds (PIBs), Fixed PIBs Floating Rate, and Market Treasury Bills (MTBs) from September to November to borrow a total of PKR 6.295 trillion.

According to the auction calendar uploaded on the central bank's website, the SBP will hold seven MTB auctions, three PIBs (fixed rate), and seven PIBs (floating rate) during the quarter. The breakdown reveals that the government intends to borrow PKR 3.475 trillion through MTBs and the remaining PKR 2.820 trillion through PIBs (fixed and floating).

In the last two T-bill auctions held on August 21 and September 4, the cut-off yields declined by up to 149 basis points (bps) in total. The cut-off yields for the three, six and 12 month-tenures stand at 17.48%, 17.74% and 17%, respectively.