Treasury bills attract record foreign investment of $713m

[Shahzaz ud din]

Treasury bills attract record foreign investment of $713m
Shahid IqbalUpdated November 15, 2019
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Recent SBP data indicates investment in government-backed securities has become attractive for foreigners. — Reuters/File
KARACHI: Foreign investment in treasury bills reached a new high of $712.8 million in the first four months of this fiscal year.

The recent State Bank of Pakistan data indicates investment in government-backed securities has become attractive for foreigners. The financial sector believes that foreign investors’ growing interest in government papers reflects their confidence in the economic reforms being implemented in the country.

However, some researchers attribute this increased demand to the high yield of treasury bills. In the last auction of T-bills held on November 6, the cut-off yield for three and six-month securities were 13.28 per cent and 13.29pc, respectively.

According to them, foreign investment can’t get such a high return from any government backed almost risk free debt papers.

The treasury bills attracted $278.6m alone in the first 13 days of November but the investment was almost exclusively from two countries: the US and UK.

Highest investment from the US was $390.8m up to Nov 13 while the cumulative amount from UK amounted to $317.9m. Out of total net inflows of $712.8m, these two courtiers accounted for $708.7m.

Inflows from the United Arab Emirates during the period amounted to $19.5m while $8m came from Luxemburg.

In the first 13 days of November, investment from UK was $181.6m, US $88.7m and $8.8m from UAE.

While foreign investment boosted the morale of the equity market with the benchmark index going up, inflow of foreign investment helped the country to improve its foreign exchange reserves.

In a recent press conference, State Bank Governor Dr Reza Baqir rejected the perception that foreign investment in T-bills would fall once the interest rates go down. He said some investors might leave but they will return back when the economy achieves stability.

The recent foreign direct investment data revealed inflows falling by 3.1 per cent to $542m in the first quarter of FY20.

Published in Dawn, November 15th, 2019

 

[Pakistan Space Agency]

Pakistan will be paying 13.25% interest on these, one of the highest rates in the world. Another PTI disaster in the making.

 

[Flight of falcon]

Pakistan will be paying 13.25% interest on these, one of the highest rates in the world. Another PTI disaster in the making.

Unf... believable... do you even know how T bills work?

 

[Battle of Waterloo]

In what world is having to pay the highest interest rates of any country in the world for government-backed bonds a good thing?

T-Bills are very short term bonds, so it's even more worrying.

UK bond yields are 0.75% and US bond yields are <2%.

13.25% interest on $713 million makes it $807 million - where is this extra $100 million in interest payments coming from when there is already a budget deficit and other loan repayments are due soon?

Unf... believable... do you even know how T bills work?

Yes, they are basically government bonds with a maturity date <12 months. As a result of the shorter maturity date they are lower risk and thus should result in a lower interest rate for investors. Once the T-Bill matures the original value ("face value") is paid along with the agreed interest.

They are a form of short-term financing for governments.

Which part of what PSA or I have written is incorrect Mr Carney?

 

[Flight of falcon]

In what world is having to pay the highest interest rates of any country in the world for government-backed bonds a good thing?

T-Bills are very short term bonds, so it's even more worrying.

UK bond yields are 0.75% and US bond yields are <2%.

13.25% interest on $713 million makes it $807 million - where is this extra $100 million in interest payments coming from when there is already a budget deficit and other loan repayments are due soon?


Yes, they are basically government bonds with a maturity date <12 months. As a result of the shorter maturity date they are lower risk and thus should result in a lower interest rate for investors. Once the T-Bill matures the original value ("face value") is paid along with the agreed interest.

They are a form of short-term financing for governments.

Which part of what PSA or I have written is incorrect Mr Carney?

Thanks for copying and pasting from other sources . So tell me now what determines the interest rate on T bills ?

Thanks for copying and pasting from other sources . So tell me now what determines the interest rate on T bills ?

Space jam kid feel feee to join in this tutorial ...

 

[Battle of Waterloo]

Thanks for copying and pasting from other sources . So tell me now what determines the interest rate on T bills ?

The risk attached to the bond, i.e. how confident investors are that the government backing the bonds will be able to repay the bonds (and the interest). This will of course be determined by the overall economic health of that government/country in the eyes of international investors. Hence why the UK/US only have to pay <2% interest on their debt (which is longer term and thus higher risk, usually around 10 year maturity period) whilst Pakistan apparently has to pay >13% interest for short-term debts. This is determined by simple supply and demand on the markets.

Any more questions or would you like to explain why PSA doesn't know what he is talking about according to you?

 

[Flight of falcon]

The risk attached to the bond, i.e. how confident investors are that the government backing the bonds will be able to repay the bonds. This will of course be determined by the overall economic health of that government/country in the eyes of international investors. Hence why the UK/US only have to pay <2% interest on their debt (which is longer term and thus higher risk, usually around 10 year maturity period) whilst Pakistan apparently has to pay >13% interest for short-term debts.

Any more questions or would you like to explain why PSA doesn't know what he is talking about according to you?

Listen you moron the Interest rate is determined by what the real yield or return will be. If Pakistan is suffering 10 percent inflation what will be the real return to investors if the interest rate was 10 percent?

Do you know what Indian bond yield is right now..... last I checked it was almost 8 percent.

Now you are not completely clueless I give you that. Investment in T bond is done by local and foreign investors . Purchase of T bills in such large amount bybthe foreigners show that the investors have confidence in the government and its policies and they feel safe and see stability and that’s why putting their money into T bills is a good sign for the government.

Here is another question: do you know the terms of T bills Pakistan auctioned ? Do you how many year deposit gives you this top return?

 

[Battle of Waterloo]

Listen you moron the Interest rate is determined by what the real yield or return will be. If Pakistan is suffering 10 percent inflation what will be the real return to investors if the interest rate was 10 percent?

As the article states, this is about foreign investors, so Pakistani inflation is irrelevant for them. The two biggest inflows of capital for these bonds are the US/UK, where inflation is <2%.

Now you are not completely clueless I give you that. Investment in T bond is done by local and foreign investors . Purchase of T bills in such large amount bybthe foreigners show that the investors have confidence in the government and its policies and they feel safe and see stability and that’s why putting their money into T bills is a good sign for the government.

Again, this is about international investors.

Large amounts? $700m is chump change, China alone holds over $1 trillion dollars of US debt. With such a high interest rate and short maturity duration it should be much higher. Buddy, if international investors had confidence in the government, they wouldn't demand such high interest rates to buy the bonds! Key part of the article: "foreign investment can’t get such a high return from any government backed almost risk free debt papers". Imagine what the interest rates would be for long-term Pakistani bonds.

Regardless, the point is that creating new debt obligations at such obscene rates of interest is a terrible idea for Pakistan. Do you disagree with this?

Here is another question: do you know the terms of T bills Pakistan auctioned ? Do you how many year deposit gives you this top return?

The article expressly states: "cut-off yield for three and six-month securities were 13.28 per cent and 13.29pc".

So I buy $1000 of Pakistani T-Bills with 6 months maturity at 13.29% interest. Pakistan gets my $1000 cash to use to service other debts or obligations or projects. I get a promise that after 6 months, Pakistan will repay the $1000 with the 13.29% interest on top - $1132.9. That interest is the premium I charge Pakistan for borrowing my $1000 for 6 months because I assume the risk that Pakistan will not be able to repay the debt.

 

[Flight of falcon]

Bravo ....

So T bills are available for local and foreign buyers alike.

Now locals buy in Rs and foreigners in dollars and its the dollars that we need the most right now.
Local will get 13.5 percent return minus ten percent inflation net 3.5....plus tax on it.
Foreigners will get this rate but will pay income tax or corporate tax and capital gains which will go back in the government pocket.

Now tell me how much government will take back from all the above sources ? What will be the net payment to the foreign buyer ?

Now here is another question what is Pakistan's interbank interest rate? What is the relationship between bank interest rate and T bill rates ?

Is this this T bill rate highest ever?

 

[Battle of Waterloo]

Now locals buy in Rs and foreigners in dollars and its the dollars that we need the most right now.
Local will get 13.5 percent return minus ten percent inflation net 3.5....plus tax on it.
Foreigners will get this rate but will pay income tax or corporate tax and capital gains which will go back in the government pocket.

Now tell me how much government will take back from all the above sources ? What will be the net payment to the foreign buyer ?

Foreigners paying tax in their countries has nothing to do with Pakistani interest rate to those foreign investors. I invest in global stocks but don't pay taxes on the dividends in those countries (or in the UK either, but that's another matter).

So many questions yet so few answers... With economic geniuses like you in charge it's obvious how you decide to go further into debt and incur huge interest payments to pay existing interest payments.

 

[Kabotar]

But here if you buy t bills from government as a foreign investor you have to register with them and pay 10% on earnings

Foreigners paying tax in their countries has nothing to do with Pakistani interest rate to those foreign investors. I invest in global stocks but don't pay taxes on the dividends in those countries (or in the UK either, but that's another matter).

So many questions yet so few answers... With economic geniuses like you in charge it's obvious how you decide to go further into debt and incur huge interest payments to pay existing interest payments.

 

[Battle of Waterloo]

But here if you buy t bills from government as a foreign investor you have to register with them and pay 10% on earnings

10% of 13.25% interest = 1.325% interest, so net interest paid by Pakistan to investors is still >10%.

 

[Flight of falcon]

10% of 13.25% interest = 1.325% interest, so net interest paid by Pakistan to investors is still >10%.

Too big of a mouth and really no understanding.

Pakistan charges tax on T bill gains. Even a child knows that.

Anyways having e trade account and playing stocks doesn’t make you a specialist in foreign funds trading.

When T bills go on sale the rate is set based on interbank interest rate, inflation rate , demand in the market etc.

Pakistan could sell these T bills to local investors and get rupees for the same interest rate or sell to foreigners and get dollars deposits that we badly need and still Pay them what we are paying local investors .
Now the government could go to the banks and borrow from them but it just happened so that the banks will want something close as well.

So good luck figuring out basics of economics but if you think of your self as Ishaq Dar then God help us all.

 

[Kabotar]

Yes in short term it will not always remain at 13.25%.

10% of 13.25% interest = 1.325% interest, so net interest paid by Pakistan to investors is still >10%.

 

[Flight of falcon]

History of Pakistan T bill returns . Guess who paid the highest rate of 17.4 percent.... Nawazoo ofcourse