Government Raises Rs350 Billion in PIB Auction as Bond Yields Decline

The recent auction of Pakistan Investment Bonds (PIBs) has marked a significant milestone for the government, as it successfully raised Rs350 billion, exceeding its target of Rs300 billion. This achievement comes at a time when the yields on five-year and ten-year bonds have reached their lowest levels since March 2022, indicating a shift in the financial landscape of the country.

According to reports from Arif Habib Limited, the auction attracted bids totaling Rs893 billion, resulting in a bid-cover ratio of 3.0x. This means that for every rupee the government wanted to borrow, there were three rupees offered by investors, showcasing strong demand for these bonds. The cut-off yield for the two-year zero-coupon bond saw a decrease of 19 basis points (bps), settling at 13.05%. Meanwhile, the yield for the three-year bond remained unchanged at 12.5%. Notably, the yields for the five-year and ten-year bonds also experienced declines, dropping by 9bps and 14bps to 12.7% and 12.838%, respectively.

In a related analysis, Topline Securities has projected that Pakistan’s Consumer Price Index (CPI) for November will range between 4.5% and 5% year-on-year (YoY). This forecast suggests a significant reduction in inflation, with the five-month average for FY25 expected to be 7.91%, a stark contrast to the 28.62% recorded during the same period last year. The report also highlighted that October’s headline inflation was noted at 7.2%, slightly above September’s 6.9%.

With inflation expectations for November hovering around 4.5-5%, real interest rates could potentially rise to between 1000-1050bps, significantly higher than Pakistan’s historical average of 200-300bps. Topline Securities anticipates that the interest rate will stabilize between 11% and 12% by December 2025, ensuring positive real rates of 200-300bps based on an expected average inflation of 8.8% for FY26. Furthermore, inflation for FY25 is projected to fall within the range of 7% to 8%.

In a broader context, the State Bank of Pakistan (SBP) has made a notable move by cutting its key interest rate for the fourth consecutive time this month, reducing it by 250bps to 15%. Since June, the central bank has lowered the policy rate by a total of 700bps through four successive reductions. This trend reflects the SBP's commitment to fostering economic growth amid fluctuating inflation rates.

The successful PIB auction and the declining bond yields signal a positive shift in Pakistan's financial environment. As the government continues to navigate through economic challenges, these developments may pave the way for enhanced investor confidence and a more stable economic future. It is crucial for stakeholders to monitor these trends closely, as they will undoubtedly influence the broader economic landscape in the coming months.