Pakistan’s central bank raises PKR 664 billion in T-Bill auction amid easing yields

Pakistan’s central bank trimmed cutoff yields on short term bonds during first auction after the policy rate decision. The State Bank of Pakistan (SBP) raised PKR 664 billion ($2.3 billion) through an auction of Treasury Bills (T-Bills) on Wednesday, surpassing its PKR 550 billion target.

Investor participation reached PKR 1,988 billion, with cut-off yields declining by up to 90 basis points, signaling potential further monetary easing.

Yields on short-term government securities fell significantly, with one-month paper dropping 90 basis points to 11.25%, three-month yields decreasing by 77 basis points to 11.24%, six-month yields falling 72 basis points to 11.28%, and 12-month yields slipping 66 basis points to 11.35%.

In a separate auction for floating-rate Pakistan Investment Bonds (PIBs), the government raised PKR 113 billion against a PKR 200 billion target, with participation reaching PKR 1,731 billion.

The auction comes amid an ongoing easing cycle, as SBP lowered the policy rate earlier this month by 100 basis points to 11%, marking the seventh reduction since the peak of 22%. A decline in food inflation, favorable global commodity trends, and the absence of anticipated gas tariff adjustments have accelerated the pace of disinflation.

According to SBP’s semi-annual report, interest payments on domestic debt in the first half of FY25 were primarily tied to PIBs and T-Bills due to high stock levels and elevated interest rates. For the first time since FY19, the government made a net retirement of PKR 1,327 billion to scheduled banks. Unlike FY19, when borrowings from SBP facilitated repayments, a lower fiscal deficit and substantial profit transfers from the central bank enabled debt retirements in FY25.

To mitigate rollover risks and leverage declining interest rates, the government set higher auction targets for PFLs and fixed-rate PIBs while planning net retirements in T-Bills. SBP highlighted that these measures effectively extended debt maturities, reduced rollover and currency risks, diversified the investor base, and lowered overall interest costs.