The accepted target amount will be announced on Wednesday, August 4, with settlement on the following day. Last cut off yield for three-month and 12-month was 2.0519 percent and 2.6979 percent respectively.
Money Market dealers estimate that currently there is a liquidity of Rs 20 billion. Soon after the announcement of auction target, overnight rupee lending rate eased to 0.5 percent from 1.5 percent.
The announcement of tender for sale of Treasury Bills for Rs 60 billion against the maturity of Rs 103 billion along with the tender for sale of Rs 3 billion Pakistan Investment Bonds (PIBs), helped to bring stability in the money market. It would be interesting to see Wednesday' s Treasury bill bidding pattern, as the market sentiment remains cautiously bullish.
Majority of the bond traders believe that major bidding interest would be witnessed in three-month rather than in 12-month, as they would prefer to wait to watch for the next interest rate direction as latest statement on monetary policy clearly indicates gradual hike of rates. Furthermore, the money market dealers would watch next weeks Consumer Price Index (CPI) economic data that would provide more clues on inflation.
A country head, financial market of a foreign bank said, "We may see some stability around the current levels, as the continuing pace of interest rate movement is too frightening and needs to be checked. The Treasury Bills auction target has certainly put banks on the defensive mood and serious bidders cannot risk their genuine positions by asking too much.
Therefore, if the target amount is met or exceeds by hiking yield of 10 to 20 basis points, the central bank may accept the bids, but demand for 50 basis points hike will certainly not be entertained."
A chief dealer of a Pakistani private bank said the SBP might succeed in getting substantial amount in three-month if the yield is pushed higher by 25 basis points, which would also help in draining the liquidity or else scraping means large size Open Market Operation (OMO), which might not be feasible.
But bidding in 12-month will see cautious approach by banks and interest may not be seen below the yield of 2.90 percent." Though, general perception of the bond market dealers is that the central bank may not allow excessive rate hike, at least for now, hence, it may prefer with its policy of conducting regular (OMOs) to drain liquidity if market continues to demand for higher yield.