The State Bank of Pakistan (SBP) raised Rs396.572 billion through the sale of fixed-rate Pakistan Investment Bonds (PIBs) on Wednesday, setting a record for the highest borrowing in years in one auction.
The amount raised exceeded the target of Rs190 billion, showing strong market demand even at the end of December.
The central bank received bids for three tenors: 3 years, 5 years, and 10 years. It accepted Rs151.7 billion for 3 years, Rs39.5 billion for 5 years, and Rs103.96 billion for 10 years bonds through competitive bids. It also picked up Rs101.411 billion from non-competitive bids, taking the total amount raised to Rs396.57 billion.
The cut-off yields for the PIBs declined from the previous auction held on November 29, 2023. The yields for the 3-year, 5-year, and 10-year PIBs recorded a notable decrease of 19, 7, and 10 basis points (bps) respectively, indicating market participants’ expectations that interest rates have peaked and are expected to fall in the coming months.
The high level of investor interest reflects their confidence in long-term bonds, driven by the anticipation of a rate cut in early 2024. The government took advantage of this opportunity and opted for long-term borrowing, which will help reduce rollover risks and lower its dependence on short-term funding in the future.
However, the SBP did not receive any bids for the 15, 20, and 30-year PIBs, nor did it allow any short selling during the auction.
The PIBs auction was conducted by the SBP on behalf of the Ministry of Finance, as part of the government’s borrowing plan to finance its fiscal deficit. The PIBs are long-term, fixed-rate government securities that offer investors a higher return than treasury bills.
The next PIBs auction is scheduled for January 24, 2024, with a target of Rs200 billion.
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