Pakistan bond yields fall as investors expect further monetary easing
Pakistan’s secondary-market government bond yields declined across all major tenors on Thursday, reflecting growing investor confidence in the macroeconomic outlook, easing inflation expectations, and anticipation of further monetary easing by the State Bank of Pakistan (SBP).
According to data compiled by Topline Securities and the Mutual Funds Association of Pakistan (MUFAP), yields on short-, medium-, and long-term government securities fell compared with both the previous day and the previous week, indicating strong demand for fixed-income instruments in the secondary market.
The benchmark three-month yield declined by 8 basis points (bps) day-on-day to 11.70%, while the one-year yield fell 17bps to 11.84%. The three-year tenor recorded the sharpest daily decline, dropping 30bps to 11.76%.
Longer-dated bonds also posted declines. The 10-year yield eased 1bp to 12.38%, while yields on 15-year and 20-year papers fell to 12.58% and 12.71%, respectively.
On a weekly basis, the decline was even more pronounced. The three-year yield dropped 104bps from 12.80% on June 11, while the one-year tenor fell 100bps. The 10-year yield decreased 55bps over the same period.
The movement suggests investors are increasingly pricing in a lower interest-rate environment amid moderating inflation, a stable exchange rate, and improving external-sector indicators.
Despite the recent declines, bond yields remain significantly higher than levels recorded at the end of 2025. Compared with Dec. 31, 2025, the one-year yield is still up 145bps, while the 10-year yield remains 91bps higher. Year-to-date, however, the pace of increase has moderated substantially following recent market rallies.
The yield curve remained upward sloping, with longer-term securities offering higher returns than short-term instruments. The spread between the three-month yield and the 20-year yield stood at about 101bps, reflecting investors’ demand for additional compensation to hold longer-duration debt.
Economists said the broad-based decline in yields reflects improving sentiment toward Pakistan’s economic fundamentals and expectations that inflation will remain contained in the coming months.
The sharp decline in short- and medium-term yields indicates that market participants expect policy rates to remain on a downward trajectory over the next several quarters.
“The bond market is signaling confidence that inflation risks are manageable despite regional geopolitical uncertainties and fluctuations in international commodity prices,” an analyst said.
Analysts noted that falling yields could help reduce the government’s borrowing costs if the trend continues, easing pressure on debt-servicing expenditures in future budgets.
The decline also comes as investors assess the impact of lower global energy prices and expectations of improved fiscal and external-sector performance in FY27.
Market participants will now closely watch upcoming treasury bill and Pakistan Investment Bond auctions for confirmation of investor appetite and signals about the future direction of monetary policy.
