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Pakistan Investment Bonds (PIBs Auction)

Pakistan Investment Bonds Investment Bonds Pakistan PIBs PIB Auction

13 replies to this topic

#1
Amin Khan

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    Pakistan Investment Bonds (PIBs)

    PIB Alert : Cut-offs to Decide Future Direction
    • An auction of Pakistan Investment Bonds (PIB) is scheduled for today; target borrowing for today’s auction is set at PKR25bn against maturities of PKR28bn. Continuous outflow in NFA account and widening fiscal deficit has heightened the liquidity shortage situation
    • As a remedial action SBP has been continuously injecting funds through OMO, the stock of which currently stands at PKR350bn. In wake of aforementioned, the auction result would be pivotal in setting future trend of cut-offs in the upcoming T-bill auctions
    • Recent numbers of M2 issued by Central Bank unveils that government has borrowed PKR232bn. Although this reflects 6.05% growth in broad money from end-June2011, a year on year comparison for the period of Jul-Feb reflects a growth of 13.00%
    • We are of the view that participation will remain grim and skewed towards short-tenors. Cut-off yields for 3Yr, 5Yr and 10Yr bonds are expected to clock in between 12.44% - 12.48%, 12.83% -12.87% and 13.04% - 13.08% respectively - It is pertinent to note that, if market participation remains below the target amount, SBP may choose to reject bids in 10Yr tenor
    (BMA)
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    #2
    Amin Khan

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    Govt. fetches PkR 25.094 bn through PIB auction
    State Bank of Pakistan on Wednesday conducted auction of Pakistan Investment Bonds (PIBs) and accepted bids worth of PkR 25.094 bn with a realized amount of PkR 23.95 bn against the total bids received of PkR 33.069 bn for the sale of 3, 5, 10 and 20 years PIB. A cut-off yield of 12.589% up by 14 bps was set for 3-year PIBs with a realized amount of PkR 5.163 bn. Bids worth of PkR 11.735 bn were accepted for the 5-year long term investment bond with a cut-off yield of 12.9389% up by 13 bps and a cut-off yield of 13.1999% higher by 29 bps was set for 10-year PIB with an auction amount of PkR 7.051 bn while bids for 20-year bond were rejected. The cut-off yields have inched up in the current auction reflecting higher demand for the funds by the government and indicate that the tight monetary policy stance is likely to sustain.
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    #3
    Amin Khan

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    Sharp increase in PIB rates
    PIB yields hiked
    The government on Thursday borrowed PKR25bn through auction of Pakistan Investment Bonds (PIBs), having maturity of three, five and ten years. The auction results show that 10-year PIBs were purchased at 13.11%, 41bps higher than the last auction held on February 15. Similarly, the yield on 5-year PIBs rose to 12.89% from 12.68%, up 21bps and on three-year PIBs it increased to 12.5%, up 10bps from the last auction. This reflects minimal interest for long term tenors in the market.

    Better liquidity last week
    Last week liquidity position was comparatively better and rates in shorter tenors were on the lower side. However, participation will be cautious in the upcoming T-bill auction.
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    #4
    Mansoor

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    PIB auction: Cut-off yields marching up!
    Written as on November 21, 2013

    Pakistan Investment Bonds (PIB) auction was held yesterday with a target of Rs50bn. In today's Value Seeker we shed light on the outcome of the same. We have further highlighted the increasing trend of cut-off yields on the back of expectation of rising discount rate due to higher inflation expectation going forward.

    Market prefers shorter maturities again
    In the latest PIB auction conducted on November 20, 2013, market participants continued to prefer shorter maturity PIBs as major activity was witnessed in the 3 year tenor PIBs, however, 10 years tenor PIBs were also able to attract more than the target amount. On the other hand participation in auction of PIBs having a life of 5 years remained out of lime light. In this auction, bids worth of Rs56bn was offered in which SBP accepted bids worth Rs45bn. The amount realized in 3 years, 5 years and 10 years was Rs20.5bn, Rs9.9bn and Rs14.98bn respectively.

    Cut-off yield for all tenors inched up. For PIBs with tenors of 3 and 5 years, cut off yields stepped up by 41bps and 45bps to 12.1001% and 12.6010% respectively. Moreover for 10 year PIB, cut-off yields rose by a noteworthy 40bps to 12.9981%. On a cumulative basis during FY14, SBP has accepted PIB bids worth Rs109.7bn while retired PIBs amounting to Rs32bn, borrowing a net amount of Rs77.7bn during the period.

    Outlook
    The current situation presents the secondary market participants with an opportunity that can be taken advantage of. Participants can re-price their PIB portfolio (maturity of 6 months or less) with new PIBs thus earning a positive spread on the same.

    With continued upsurge in inflation expected on the back of higher food item prices, mostly perishable items, we expect by the end of FY14 the same will reach ~11%. Such expectations pave way for the announcement of further increase in discount rate in the upcoming monetary policy. However post January as stability on interest rate front illuminates, we expect participation in longer tenor PIBs to revive, becoming a more popular preference amongst players.


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    #5
    Mansoor

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    Strategy: Massive PIB issuance bodes well for NIMs

    In the PIB auction yesterday, the govt raised PRs247bn, compared to a target of PRs60bn. This follows the massive auction conducted in Jan-14, in which PRs 197bn were raised; cumulatively, PRs444bn in the last 2-months.

    Cut-offs were almost unchanged, with the 3, 5, and 7 yr cut-off at 12.09%, 12.55%, and 12.89% respectively. The most interest was in the 3-year instrument, in which PRs134bn (55% of the total amount) was raised.

    From the perspective of banks, this would lead to a significant improvement in NIMs in 1H14. The yield on the 3-year PIB is significantly higher than what is on offer on the Treasury bill (~ 10%) and also an improvement on lending yields (currently at 11.17%).

    However, in our opinion, this would hamper the nascent recovery in private sector credit, as the govt is consuming massive liquidity through PIB auctions.




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    #6
    Mansoor

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    PIB Auction Jan’15

    Falling yields to bring gains at KSE

    Yields on fixed income govt. papers have come off considerably in New Year on the back of interest rate expectations and liquidity. In the first PIB (Pakistan Investment Bond) auction of CY15, held on January 28’ 2015, SBP has received welcoming response by local investors with the participation of ~PKR292bn by investors while Cut-off yields have declined by average 1.1-1.7pps to 8.89% for 3-years, 9.7% for 5-years and 10.0% for 10-years papers. This is the first time since CY07, we have seen such low levels. Similarly, money market yields have also come down by 72-75bps during Jan'15 on benign inflation outlook and falling DR.

    To recall, banks have made record investment of PKR2.6tn in PIBs during CY14 against annual average of PKR129bn since CY01. Considering the fact that bonds yields are inversely related to their market prices, the sharp decline in the PIB yields is going to beef up banks’ revaluation surplus on fixed income instruments, hence higher book value. It would also encourage bankers to shift to private sector lending for higher returns and investors to turn to stock market.

    With yields coming down, valuations of listed companies will theoretically be revised upwards by ~5-10%. We expect more cash flows from institutions and high net worth individuals to come to equities if yields on PIBs remain low. Global commodity slump would provide the necessary cushion to economic managers to bring back growth in the country and invest in infrastructure projects. We remain affirm on our KSE-100 index target of crossing 37k by Dec-15. Pakistan stock market is trading at CY015F PE of 9.2x. Banks and Cements remain our top sectors that can outperform the market



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