For years, debt market watchers have been warning that the maturity profile of the government’s domestic debt is getting dangerously short.

At one point, all bids for T-bills were coming in the three-month tenors, creating serious rollover risks.

The State Bank and the IMF had both warned of this extreme concentration in short-term paper, raising the spectre of a disorderly default given the size of the rollovers the State Bank had to manage every quarter.

There was one year in which almost Rs1tr was being rolled over every quarter. Moody’s warned of an “event risk” in sovereign debt on bank balance sheets, and even downgraded the credit rating of all major Pakistani banks as a result.

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Last year, as part of a debt management strategy, the government was urged to move into longer tenors.

Now the herd mentality of our financial markets has created a stampede into longer tenors the likes of which we haven’t seen in years.

The pendulum is moving so inexorably away from short-term treasury bills towards the longer-term Pakistan Investment Bonds that the numbers are a little startling. For instance, one PIB auction in 2011 that attracted a total of Rs42bn in bids was described as an “overwhelming market response” in subsequent press commentary.

But today, the last PIB auction drew almost Rs200bn in bids, and other auctions this year have seen that amount rise to Rs425bn.

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This turning of the tide would be welcome if it was driven by confidence in the government’s financing plan.

But as it turns out, this move is largely explained by the lure of higher returns on PIBs, which offer three percentage points above T-bills, and the continuing reluctance of banks to increase exposure to the private sector.

The government should ensure that the banks’ appetite for easy money is not whetted so easily. Perhaps it is time to force the banks’ hand into engaging with the private sector as well.

Published in Dawn, September 19th, 2014