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 told Reuters on Wednesday.
The wealthy OPEC member launched quarterly government bond sales in March 2013 to expand the central bank’s policy arsenal and help banks manage liquidity.
Since then, it has usually issued QAR3 billion ($824 million) worth of conventional bonds and QAR1 billion 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 QAR4 billion 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 Sheikh 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, Sheikh 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 QAR4 billion.
Sheikh 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 QAR12.25 billion 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.