The finance ministry, while explaining its strategy of shifting from short-term debt to long-term debt, said the market appetite for long-term securities only increases when interest rates drop. interest is declining.
“It is only in such an environment that large lots can be obtained within a narrow price range,” he said in a statement Friday.
On the other hand, according to the ministry, when interest rates are considered to have reached a floor, the participation of market participants in long-term papers declines. In this case, even a small volume can be purchased at a considerable premium over prevailing market prices.
“The perfect time for (debt) reprofiling is the plummeting interest rate environment. This in fact led to a much lower cost than what would have been incurred in a rising market. “
A few days ago, economist Dr Ashfaque Hasan Khan argued that the government, although having adopted a good strategy to venture into long-term papers to avoid the risk of refinancing, had chosen the bad time when interest rates were going down.
According to the Ministry of Finance, in June 2013, 64% of total domestic debt had a maturity of less than one year.
He pointed out that there would always be a difference between the yield on short-term treasury bills and long-term Pakistani investment bonds (GDP), called term premiums.
The premium in July 2013 was 1.37% before the start of debt reprofiling. It rose to 1.77% in January 2014 due to certain other factors and the absence of the Medium Term Debt Strategy. The premium peaked at 2.08% in June 2014, when reprofiling began. It fell to 0.99% in December 2014 and currently stands at 0.43%.
As part of the reprofiling strategy, the ministry said, GDP coupon rates were reduced from 2% to 2.25% for the first time since August 2008.
Posted in The Express Tribune, May 9e, 2015.