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Pakistan Money Market Review

Updated on Nov 06, 2000

The outcome of T-Bill auction and the secondary market conditions in the money market seem to have put the authorities once again in the driving seat. A tight and short market and the T-Bill rates being maintained at previous rates which had been in the mind of the pundits at the State Bank. The short term market remained well within the 12.00% and 13.00% band with overnight trading restricted to the 12.95% level. It was the one and two week rates that showed a slight concern on part of the lenders who placed funds in these tenors in between 11.75% and 12.25%, while earlier in the week trades were reposed at around 12.75%. Even after the net inflow of approximately Rs. 9 billion, the market continued to remain in a liquidity crunch causing banks to visit the repo discount window for respite. The shortness falling to around Rs. 5 billion touched a high of approximately. Rs. 12 billion on Friday, primarily due to reserve averaging by banks. However the discounting eased off on the weekend and was according to unconfirmed reports it was reported at around Rs 34 billion.

Although trading activity in the term repo market remained somewhat thin, participation in the auction clearly reflected the worried sentiment of players in the market. The maturity to the tune of Rs. 23.39 billion caused banks to bid with large amounts at levels below those available for small amounts in the secondary market. The total bid amount may certainly have matched the pre-auction target of the State Bank, but some bids were at levels that had few chances of being accepted. The cut-off levels, 11.00% and 11.50% against the six month and one year papers managed to pull in a total amount of Rs. 13.85 billion while bids for the three month paper were rejected for the second time in a row. The term repo market which had already witnessed significant trades in forward from the 2nd of November came of further prior to the auction. Three and six month levels fell off by about 50 b.p.s with trades being conducted in between the narrow band of 11.00% and 11.25%. There was panic lending in both the tenors as bids continuing to stand at similar levels after the auction result. It was the one month tenor that had witnessed most of the volatility with rates oscillating between 11.25% and 12.25% Falling prior to the auction but rising sharply to 12.00% on news of the heavy discounting on Friday.

It seems that the State Bank has been content with the conditions in the money market. The parity of the rupee is close to the desired levels and attracting amounts in the auction has not much of a problem. Although there has been a narrowing of the spreads between the cut-offs and the secondary market rates, chances of any major predication in long term bonds seem unlikely. The existing discount rate of 13.00% may well be maintained and all rumors of another adjustment have been false. However, with the introduction of the long term bonds around a dual discount rate i.e. different against T-Bills and higher against long term bonds, as witnessed in January 1995, could also come into question but that could only keep pressure on banks to focus on T-bills.

YIELD PROFILE

FEDERAL INVESTMENT BONDS

.

THIS WEEK

1 WEEK AGO

1 YEAR AGO

1 Year

11.85

12.50

11.25%

2 Year

12.75

13.00

11.75%

3 Year

13.20

13.75

12.50%

4 Year

13.40

14.00

13.00%

5 Year

14.00

14.25

13.25%

10 Year

14.50

15.00

14.00%




AUCTIONS
BID DATE INSTRUMENT RESULT SETTLEMENT
Nov  01 T-BILL Nov 01 Nov 02
TARGET AMOUNT BID AMOUNT ACCEPTED AMOUNT
Rs.23.415 Bln.

Rs.23.515 Bln.

Rs.13.850 Bln.


 
MATURITIES

INSTRUMENT

DATE

AMOUNT

T-Bill

02 Nov

23,390 Mln

T-Bill

16 Nov

4,850 Mln

T-Bill

30 Nov

1,850 Mln




REPO RATES

 

THIS WEEK

1 WEEK AGO

1 YEAR AGO

Overnight

12.95

12.95

12.95

1 Week

12.25

12.70

07.00

1 Month

12.10

11.68

07.50

3 Month

11.30

11.50

08.65

6 Month

11.25

11.58

09.50

1 Year

11.75

12.13

N. A.




TREASURY BILL RATES
MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO

1 Month

13.10

12.65

08.50

2 Month

12.00

12.05

08.70

3 Month

11.60

11.75

08.80

4 Month

11.65

11.20

09.10

5 Month

11.70

11.80

09.60