Govt raises Rs83 billion in PIB auction amid sharp drop in yields

The federal government raised Rs83 billion through Pakistan Investment Bonds (PIBs) on Thursday, falling short of the Rs200 billion target. 

The auction, held by the State Bank of Pakistan (SBP), saw a sharp decline in bond yields, reflecting improving liquidity conditions and easing inflation. 

The auction attracted total bids worth Rs630.865 billion, but the government opted for selective borrowing, accepting only Rs83 billion – Rs24.481 billion from competitive bids and Rs58.77 billion from non-competitive bids.

Yields for the three-year PIB fell by 335 basis points (bps) to 12.9%, the lowest since March 2022. The five-year bond yield also saw a reduction of 190 bps, settling at 13.4%. The 10-year bond yield dropped to 13.2%, down from 16.6% just a year ago. 

These declines mark a sharp shift in the bond market, driven by receding inflation and the government’s aim to reduce its debt servicing costs.

According to analysts, the government’s reduced borrowing reflects its improved liquidity position. 

The auction also introduced a two-year PIB for the first time, which was issued at a cut-off yield of 13.98%, a rate much lower than market expectations. 

In the past year, the yield on the three-year PIB has dropped from 21% to 12.9%, while the five-year PIB yield has decreased from 18% to 13.4%.

This PIB auction followed the government’s decision to reject all bids in the Treasury Bills (T-Bills) auction held just a day earlier. Analysts saw this as a strategic move to signal the government’s focus on reducing its borrowing costs, particularly as rising debt servicing burdens the national budget.