Pakistan Money Market Review

Updated on Oct 23, 2000

The inter-bank market remained glued at the sky high level of 13.00% with banks continuously visiting the repo discount window for respite. However, the discounted figure fluctuated during the week due to T-Bill and OMO maturities and the acceptance of only Rs. 200 million in the new auction. Shorter tenors of one and two weeks also traded in between 12.75% and 12.95% early in the week. It was only after the auction result that rates eased off marginally with two week levels easing off and trading at around 12.25% only to be seen rising back towards the weekend. However, a rejection did cause the market to experience an inflow of approximately Rs.12.50 billion and reduce the shortfall in the market, which was short lived and according to unconfirmed reports the figure rose back and touched Rs 20 billion towards the weekend.

The term market continued to remain firm, keeping in mind that some players in the market were expecting large acceptance in the auction with another jump in the yields, with one month levels at 12.50% and 12.75%. It was the auction result which caused rates in all tenors to ease off with the one month level falling the most, from the pre auction trading rate of 12.35% to as low as 11.25% later. It was only sudden borrowing from certain quarters at around 11.75% and 12.00% that caused rates to jump back up. The three and the six month tenors were also marred with volatility and trades were witnessed at 12.00% and 12.20%, respectively with this activity only prior to the auction. Thereafter rates fell and the bid and offer gap increased with quotes at 11.50% and 12.00%. No trades were witnessed in the longer tenors below the 12.00% mark. The T-Bill auction having a target amount of Rs. 4.64 billion managed to attract an aggregate amount of Rs. 11.77 billion. The bid pattern did reflect chances of a rejection, keeping in mind bids for large amounts at significantly higher levels, but certainly market driven. SBP put its put down and maintained the cut-of yield by accepting only Rs. 200 million against the six month paper at 11.00%.

The T-Bill bid pattern clearly reflected the general sentiment that is currently prevailing in the inter-bank market. The indication that the State Bank has given by accepting only Rs. 200 million does provide some insight on what rates are to exist in the primary market. We feel that also causes further confusion as well with regards to the issue of the long term bonds. Keeping 6 month yields at levels of 11.00% can only cause investors in 10 yr papers to be looking at yields of at least 14.00% but with the current discount rate of 13.00% any sizable investment in these long term bonds would certainly seemed far fledged. Furthermore, having a discount rate separate for T-Bills and long term bonds could also come into question as witnessed in January 1995 when banks could discount against T-Bills, the 3 and 5 Yr. FIBs at 15.50% and at 17.50% against the 10 Yr. FIB

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	12.50	12.75	11.00%
2 Year	13.00	13.25	11.75%
3 Year	13.75	14.00	12.50%
4 Year	14.00	14.25	13.00%
5 Year	14.25	14.75	13.75%
10 Year	15.00	15.25	14.50%

AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Oct 18	T-BILL		Oct 18		Oct 19
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.4.643 Bln.		Rs.11.770 Bln.		Rs.200 Mln.

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 05 Oct 7,300 Mln T-Bill 06 Oct 600 Mln T-Bill 19 Oct 4,550 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 12.95 12.95 04.50 1 Week 12.95 12.95 07.50 1 Month 12.10 12.90 08.00 3 Month 11.70 12.25 09.25 6 Month 11.75 12.10 09.60 1 Year 12.20 12.80 N. A.

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 13.10 13.90 08.75 2 Month 12.20 13.10 08.60 3 Month 12.10 12.90 09.60 4 Month 12.05 12.90 09.70 5 Month 12.00 12.60 09.90