The government rejected all the bids for fixed-rate Pakistan Investment Bonds (PIBs) against a target of Rs. 175 billion at the secondary market auction held on Wednesday as investors sought higher returns.
According to the data released by the State Bank of Pakistan (SBP), the government rejected all bids for the three-year, five-year, and 10-year instruments, while it did not receive any bids for the 15-year, 20-year, and 30-year papers.
Markets carried forward last month’s negative sentiment that had gained traction since the SBP raised its policy rate to 16 percent on November 25th. Analysts claim that the central bank rejected the bids because it wants to decrease the current high rates being offered on PIBs.
The rates of return on secondary market instruments may become even less favorable than yesterday’s offerings as the central bank is most likely planning further monetary tightening to curb inflationary shocks and liquidity shortfalls currently gripping the economy.
To some extent, SBP’s aggressive stance could reflect implicit pressure from the IMF to stay on top of inflation ahead of the delayed 9th EFF review as well as a pre-emptive move to guard against currency pressures even as forex reserves continue to fall.
If policy orthodoxy against inflation stays, forecasts suggest the SBP will remain behind the curve and returns on PIBs and similar offerings may decline further.
Pertinently, the government still plans on raising further debt of over Rs. 5 trillion between December 2022 and February 2023. As per the SBP auction calendar until February, the government aims to raise Rs. 1.195 trillion through PIBs and Islamic bonds, and Rs. 4.325 trillion via market treasury bills, taking the overall debt profile of the government to Rs. 5.520 trillion for the December-February period.