Govt rejects all bids for PIBs

Govt rejects all bids for PIBs

KARACHI: The government rejected all the bids received for Pakistan Investment Bonds (PIBs) on Wednesday amid expectations of higher returns by banks.

Bond market experts said banks were seeking higher yields as their earnings have fallen amid the sustained low interest-rate environment. In its last announcement in April, the monetary policy committee of the State Bank of Pakistan kept the policy rate at 6.0 per cent due to expectations of a hike in goods prices.

However, the prices of crude oil have started inching up, approaching $50 a barrel, which may fuel a rise in interest rates. “The bond market has a relation with oil prices — increasing oil prices mean higher inflation that may push up the interest rate on the higher side in the future,” said Rehan Atique, CEO of Shajar Capital.

On Wednesday, the 10-year benchmark PIBs traded at 8.40-50pc.

“It’s clear that the interest rate has bottomed out. But the banks should not hold higher expectations as the State Bank has indicated that time has not yet come for a jump in the interest rate,” said Mr Atique.

In the next two months, a maturity of about Rs1.4 trillion is scheduled and the government needs to pay back this huge amount. It shows the government needs massive liquidity in the coming days.

However, market experts said that about 70pc of the maturing bonds carry a return of about 12pc. This big decline in returns due to low interest rate would slash banks’ earnings, but they are bound to reinvest in PIBs as their options of investment are limited.

Another money market expert S.S. Iqbal said the government may pick up bigger amount in the next auction as its needs have been on the rise. He said the biggest size of maturity is scheduled in July, therefore, the government would prefer not to borrow during this fiscal year, which ends on June 30. This strategy will help the government improve its performance by showing lower borrowing.

The government is under pressure due to the opposition’s criticism on massive borrowings, both domestic and foreign. The half-yearly results showed that the huge costly borrowing through PIBs has significantly increased the size of domestic debt servicing.

Source: http://www.dawn.com/news/1259218/govt-rejects-all-bids-for-pibs

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