Updated on Apr
This week interbank market flooded with excess
liquidity and overnight funds mostly traded at the lower end of the
spectrum. Rates fall sharply after the T-bill auction in which SBP
accepted around Rs.6.10 billion. At the start overnight rates were
quoted in the band of 3.00% to 3.50% but near the end of the week
activity was witnessed at the rock bottom levels and deals were struck
in the range of 0.75% to 1.00%.
This week in term repo side trades in three and six
months was seen at 20 to 40 basis points lower than the prevailing
T-bill cut-off yields. One month repo saw a fall of around 50 bps and
trades in respected tenor was witnessed as low as 5.00%. The SBP
conducted regular T-bill auction during the week and participation in
the auction reflected that banks were convinced that the authorities
will follow the policy of stable interest rates and there will be no
upward adjustment is expected in the coming days. The pre-auction target
was Rs.3.00 billion against the T-bill maturity of around Rs.7.00
billion. Heavy participation of around Rs.19.50 billion was reported,
SBP accepted total amount of Rs.6.10 billion in six and one year papers
and rejected all the bids in three months paper. However, slightly
decrease of around 4 bps in the yield on the six months paper was seen.
After the T-bill auction, aggressive trading was seen in three and five
months to maturity papers at 5.80% and 6.00%, buyers for nine months to
maturity papers were willing to bid at 6.75% and trades were also
witnessed at the same levels. Towards the end of the week sharp fall in
one and two week's was seen and trades in respected tenors was executed
as low as 3.25%, and 4.00%, one of the major reason for the fall was the
hidden inflows which falls near the end of the week.
Due to the prevailing liquidity in the system, it is
expected that SBP will conduct OMO in the coming week to stabilize the
market. We expect that aggressive trading in T-bills will be seen in the
coming week as there is a strong feeling that slight downward adjustment
is expected in T-bill cut-off yields.