Govt raises Rs 557bn in short-term debt against target of Rs 600bn

The State Bank of Pakistan (SBP) raised Rs 557.388 billion in short-term debt via a treasury bill (T-bill) auction on Wednesday. This was against a target of Rs 600 billion and debt maturity of Rs 654 billion. 

Tenders for the sale of three-month, six-month and 12-month T-bills were invited by SBP through primary dealers on October 4, for settlement on October 5. Data shared by the central bank showed bids totalling Rs 2.252 trillion were received for the shortest-term bill. Meanwhile, bids amounting to Rs 120 billion and Rs 443.655 billion were received for the six-month and 12-month T-bills respectively. 

The cut-off yield — the highest interest accepted — for the three-month, six-month and 12-month T-bills stood at 22.5%, 22.85%, and 22.84%, respectively. These were largely unchanged from the last T-bill auction on September 20 when the cut-off yields for the three tenors were 22.78%, 22.8%, and 22.9%, respectively. 

The cut-off yield for the three-month T-bill declined by 29 basis points (bps) and that for the 12-month T-bill by 6 bps. On the other hand, the cut-off yield for the 6-month T-bill rose by 5 bps. 

According to the auction results shared by the SBP, the government managed to raise Rs 471 billion from three-month T-bills, Rs 18 billion from six-month T-bills and Rs 68 billion from 12-month T-bills. 

T-bills are short-term government securities that are issued by the government of Pakistan and distributed in the primary and secondary markets by the SBP. These highly liquid government securities have sovereign guarantees and a fixed rate of return, which is referred to as a yield. T-bills are a tool for raising short-term cash by governments.

On the day of the auction, primary dealers (banks and brokerage houses) offer bids for T-bills with a certain yield. This yield is determined by policy rates, market sentiment and future expectations. A certain cut-off yield is announced that renders all the bids below that rate as accepted. The dealer pays the SBP a discounted amount for the bill, which is returned in full at maturity factoring in the yield of the T-bills.

The cut-off yield has remained largely unchanged in the latest auction as the market has aligned itself with the central bank’s stance on the policy rate. In the T-bill auction held on September 6, the cut-off yields for the three tenors had gone up to 25%, indicating that the market expected the SBP to hike the policy rate by at least 200 bps. 

However, in its meeting on September 14, the SBP’s Monetary Policy Committee decided to maintain the policy rate at 22%, noting that inflation was expected to continue its downward trajectory. Consequently, the cut-off yields in a T-bill auction held on September 20 fell to less than 23% as well. 

The next T-bill auction will be held on October 18, through which the government aims to raise Rs 750 billion for debt maturity of Rs 783 billion.