Govt raises Rs566 billion as PIB yields fall on easing expectations

The government raised Rs566 billion through an auction of fixed-rate Pakistan Investment Bonds (PIBs), surpassing the Rs350 billion target, as yields fell across tenors amid market expectations that the central bank’s tightening cycle has peaked and monetary policy may gradually shift towards easing.

The cut-off yield on two-year PIBs fell by 70 basis points to 11.45%, while the three-year paper declined by 60 basis points to 11.49%.

The yield on five-year bonds dropped by 56 basis points to 11.63%, while the 10-year paper was down 47 basis points to 12.14%.

The auction result came after consumer price index inflation stood at 11.1% year-on-year in June, down from 11.7% in May and within the government’s projected range of 11% to 12%.

Market analysts said the auction showed investors believe the policy rate has reached its peak, with the 100 basis points hike on April 26 being viewed as the final increase in the current tightening cycle.

They said easing geopolitical risks after de-escalation in the US-Iran conflict and anchored inflation expectations had led markets to price in near-term policy stability, followed by a gradual easing cycle if macroeconomic conditions allow.

The decline in PIB cut-off yields also reflected the unwinding of the geopolitical risk premium and growing confidence that monetary policy is shifting from a tightening bias towards easing.