PIB's cut-off yield drops

KARACHI - State Bank of Pakistan (SBP) conducted its scheduled auction of Pakistan Investment Bonds on Wednesday with the target of raising PKR 20 billion.
With the market currently liquid, heavy participation was witnessed with bids of PKR46.2 received, out of which PKR20.2 billion were accepted. Most interest was seen in the 10-year bond which attracted bids of PKR25.5 billion against a target of PKR 5.0 billion.
The cut off yields on the 5, 10, 20 and 30 years PIBs were reduced by 142 bps, 170 bps, 165 bps and 195 bps respectively. The new cut off yields were as follows: 3 year - 12.9385%, 5 year - 12.9495%, 10 year - 13.2409%, 20 year - 14.2492% and 30 year - 14.4995%
The cut off yields approximated the current secondary market yields with a slight premium (10 year secondary market yield 12.99%). With excess liquidity in the market (SBP conducted a 2 day mop up of PKR9.3 billion) and expectations of a rate cut, the auction was a huge success. We maintain our view that the SBP will cut the discount rate between 50 - 100 bps in the upcoming monetary policy review which is scheduled for April 20, 2009.