Pakistan Money Market Review

Updated on June 30, 2001

The past week saw rumours of the discount window being closed on the quarter end being ripe again. Banks keeping this in mind did cover amid expectations of a hike in the market on June 30th. A Special OMO on Monday and heavy borrowing caused the one and two week offers to cross the discount rate of 14.00% with activity at 15.50% in both tenors. All bids in the OMO were rejected and views did turn around towards the end of the week with lenders placing one and two week activity conducted at the discount rate of 14.00%. It was on June 30th that market players with mixed views quoted wide levels for overnight funds. However only nominal amounts traded above the discount rate with trades also as low as 12.00%. Banks finally managed to square themselves at 13.50% at the market reflecting signs of being long.

The State Bank of Pakistan lived upto its promise of raising interest rates when needed as was mentioned in the Letter of Intent that was signed with the IMF for the last quarter of the financial year. SBP announcing a pre-auction target of Rs. 12.80 billion accepted a total of Rs. 16.63 billion up bringing up the cut-off yields on its T-Bills yet again. In fact the cut-off yield for the six month paper at 13.10% was higher than the one year paper yield of 13.00% a move that did take the market by surprise. However the weighted average i.e. the cost to the SBP. on the two papers still stood at 12.88% and 12.94%, respectively which was more of a concern to the authorities. The term repo market that maintained a firm stance after the yields were raised in the auction did turn around on Friday. Initially it was the three month call rates that fell off sharply due to the one year US Dollar SWAPs that were in between SBP and commercial banks. Offers fell from 13.25% with activity at 12.50%. According to unconfirmed reports SBP provided T-Bills in return of the funds that it received which was the major reason that trades in call were conducted at repo levels i.e. at a zero premium. Lenders maintaining long positions at the year end took the opportunity to place funds in tenors other than overnight that caused rates to ease off. Heavy activity was conducted in the one month tenor initially at 12. 50% with the slide continuing before bids and offers settled at 11.50% and 11.75%, respectively. Three month rates also fell off by about 75 b.p.s with offers at 11.90% and bids at around 11.75% but no deals were witnessed below 12.00%. The financial year finally came to an end amid all the rumours on IMF targets, the discount window being closed and also interest rates shooting up to levels witnessed on December 31st 2000. However none of the above was witnessed that was much in line what the authorities had been speaking about since the announcement of the budget on 18th June. The past week, market players witnessed interest rates on T-Bills at the highest since April 1999 amid a depreciating Pak rupee and continuous outflows of dollars from the country on account of payments. However the secondary market has shown strong signs of easing off and we feel that in the coming days we will continue to see participation in auctions and OMOs at aggressive levels.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	13.00	13.00	08.25%
2 Year	13.40	13.50	09.00%
3 Year	13.80	14.00	09.50%
4 Year	14.25	14.25	09.75%
5 Year	14.50	14.50	10.00%
10 Year	15.00	15.00	10.50%

.

AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Jun 27	T-BILL		Jun 27		Jun 28
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.12,800 Mln		Rs.16,730 Mln		Rs.16,630 Mln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 26 June 2,669 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 13.00 04.25 10.95 1 Week 12.00 06.50 10.90 1 Month 11.50 11.25 09.65 3 Month 11.80 11.90 07.60 6 Month 12.30 12.40 07.50 1 Year 12.60 12.70 N.A

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 12.50 12.25 10.50 2 Month 11.70 11.60 09.00 3 Month 11.80 11.90 08.00 4 Month 12.00 12.00 08.00 5 Month 12.30 12.40 07.85