Updated on Jan 05, 2002

Volatility was witnessed in the interbank market on the 31st of December and towards the end of the week. The year end did cause the market to experience short term rates at around the discount rate of 10.00% but calm prevailed towards the close of the day. The market maintained a downward trend for the rest of the week with rates easing off across the board. The State Bank continued it pro-active policy of two way OMOs which were witnessed the past week as well.

The year end saw banks covering themselves at sky-high levels of 9.90%. It was the first time that the State Bank actually injected liquidity at the year end a time when there are always chances of banks being refused discounting. SBP provided Rs. 4.90 billion at 7.00% for one week which later caused overnight levels to ease off and close at 7.00%. The rest of the week trades were conducted at levels in between wide bands of 1.50% and 7.00%. Heavy activity was conducted in one week repos at lows of 4.00% as banks off loaded their funds at the onset of the new year. The secondary market picked up marginally after another two way OMO saw SBP picking up funds in the one and four week tenors at levels of 6.25% and 7.00% respectively. However, rates continued to fall sharply in the term market with one month call and repo trades at levels of 6.50% while three month activity was reported at a new low of 7.00%. It should be noted that repo trades in the three month tenor at levels of 7.00% were last witnessed in July 2000 right before the slide in the value of the Pak Rupee. Six month activity was hard to come by but bids and offers were available at 7.35% and 7.60% toward the weekend. T-Bill outright trades have been scarce as yields continue to ease off with banks preferring to hold onto their papers rather than look at capital gains.

Forecasts made by us in our December reports with regards to SBP providing liquidity prior to the year end do seem to have materialized and we continue to feel that rates will come off further in the primary market. The first step has been the 100 basis points reduction in the return on the ten year Defense Saving Certificate. However we feel that as long as strife and tension looms on our eastern borders any major reduction in the discount repo levels seems unlikely.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	08.35	08.40	12.25%
2 Year	09.15	09.25	12.75%
3 Year	10.50	10.75	13.35%
4 Year	10.75	11.00	13.50%
5 Year	11.00	11.25	14.00%
10 Year	12.25	12.25	14.75%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Dec 26	T-BILL		Dec 26		Dec 27
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.24,755 Mln		Rs.20,137.3 Mln		Rs.9,760.3 Mln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 07 Jan  6,000 Mln T-Bill 24 Jan  5,650 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 07.25 06.00 12.95 1 Week 06.00 08.50 12.95 1 Month 06.75 07.55 11.65 3 Month 07.10 07.30 12.00 6 Month 07.50 07.60 11.85 1 Year 08.00 08.10 12.25

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 07.15 07.90 12.65 2 Month 07.00 07.40 11.75 3 Month 07.10 07.35 11.90 4 Month 07.30 07.50 11.85 5 Month 07.50 07.60 11.75