Pakistan’s 10-year bond's yield at 2.5-year low

The State Bank of Pakistan (SBP) raised PKR 350 billion, surpassing its target of PKR 300 billion in its Pakistan Investment Bond (PIB) auction on Wednesday.

The central bank received bids totaling PKR 893 billion, achieving a bid-cover ratio of 3.0x.

The cut-off yield for the 2-year zero-coupon bond decreased by 19 basis points to 13.0500%. The yield for the 3-year bond remained unchanged at 12.5000%. The yields for the 5-year and 10-year bonds fell by 9 basis points and 14 basis points, settling at 12.7000% and 12.8380%, respectively.

This decline marks the lowest levels for the 5-year and 10-year bonds since March 16, 2022.

It may be mentioned here Pakistan government plans to raise PKR 8.7 trillion in new domestic debt from commercial banks over the next three months, ending January 2025.

This is part of an ongoing strategy to restructure and re-profile local debt. A significant portion of this amount, PKR 6.85 trillion, will be used to repay maturing obligations to financial institutions.

According to government data, PKR 5.5 trillion of the new debt will be raised through shorter-term Treasury bills (T-bills) with maturities between three and twelve months, covering the PKR 6.72 trillion due to mature over the same period.

Additionally, the government plans to raise another PKR 3.2 trillion through longer-term Pakistan Investment Bonds (PIBs) with tenures ranging from two to ten years, while repaying a nominal PKR 129 billion in maturing PIBs during this period.

The government's restructuring strategy aims to reduce reliance on high-cost, short-term debt by shifting to lower-cost, long-term bonds. This provides greater financial stability and reduces the frequency of debt auctions. The approach also allows the government to focus on key economic reforms, such as improving tax revenue collection, to decrease its dependence on accumulating debt, including foreign loans.