Qatar pledges flexibility over govt bonds
Dubai, June 19, 2014
Qatar's central bank will be more flexible in planning future auctions of government bonds, adjusting the timing and characteristics of the issues depending on market conditions and its policy stance, the bank's chief said yesterday.
The Opec member launched quarterly government bond sales in March 2013 to expand the central bank's policy arsenal and help banks manage liquidity, reported the Gulf Daily News, our sister publication.
Since then, it has usually issued three billion riyals ($824 million) worth of conventional bonds and one billion riyals of sukuk each quarter with maturities of three and five years.
In the last two auctions, however, the central bank has varied the pattern, selling 4 billion riyals of solely conventional bonds on Sunday this week after offering the same amount of purely Islamic bonds in April.
Also, in the last bond auction on Sunday the central bank included a new seven-year tranche, a step towards building a longer yield curve in the riyal-denominated bond market.
"The type of bonds and the auction volume to be issued in the future would depend on liquidity conditions as well as the stance of monetary policy at that time," governor Shaikh Abdullah bin Saud Al Thani said in written answers to questions.
He added that the timing of local currency bond auctions would also depend on market conditions and policy goals.
"The introduction of government bonds with a maturity of seven years is in line with the objective of lengthening the maturity profile and thereby developing the government debt market," he said.
"It is expected that auctions of these instruments along with transactions in the secondary market will facilitate the development of a yield curve, which will help in the efficient pricing of other debt instruments."
Asked if Qatar intended to offer local currency bonds with maturities above seven years, Shaikh Abdullah said future sales of government bonds with longer maturities would depend on both liquidity conditions and investor demand.
Qatar may need more active management of money market liquidity in coming years as the state and its companies plan to spend some $210 billion on development projects ahead of the 2022 World Cup soccer tournament; the projects are likely to push huge amounts of money through the banking system.
Over the past year, the International Monetary Fund has been urging Qatar, the world's top exporter of liquefied natural gas, to consider more flexible Treasury bill and government bond issuance to reduce volatility in yields.
In addition to its bond auctions, the central bank has conducted monthly auctions of three-, six- and nine-month T-bills since 2011, consistently draining the same amount of 4 billion riyals.
Shaikh Abdullah did not say whether the flexible new approach to bond auctions would also apply to T-bill auctions.
On Sunday, overall demand at the bond auction reached 12.25 billion riyals for three-, five- and seven-year tranches of conventional bonds, more than triple the amount of debt offered. The bonds were sold at yields of 2.25 per cent, 2.75 per cent and 3.50 per cent. – TradeArabia News Service