KARACHI: Foreign investment in local bonds reached $77.2 million till Dec 31, 2020, data released by the State Bank of Pakistan showed on Friday.

With the emergence of Covid-19 in March, foreign investments in treasury bills and Pakistan Investment Bonds (PIBs) left the country within a few months. However, foreign investors started to return in Nov 2020, with the PIBs receiving about $43m in that month.

Foreign investors found confidence to invest more in the bonds through Special Convertible Rupee Accounts (SCRA), under which there are no restrictions on investing and withdrawing the investment.

According to the SBP data, investors made a total investment of $33.6m in the PIBs in Dec 2020.

The returns on PIBs are highly attractive for investors. Banks and non-banks also invested heavily in the PIBs.

According to another SBP report, so far banks and non-banks’ total investments in PIBs stood at Rs6.733 trillion.

Currently, PIBs offer returns up to 8.24 per cent per annum on three-year PIBs while the benchmark 10-years PIBs offer 8.94pc yield. In the previous auctions, the cut-off yield for 15-year PIBs was 10pc.

“I believe foreign investments in PIBs were due to the still high returns being offered. The returns are fairly higher than the returns on global level,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

He said another reason was the improved situation of external account as the current account has been posting surplus since July FY21.

Since the beginning of new calendar year 2020, PIBs were offering much higher returns. The cut-off yield for three-years was 11.53pc, for five-years at 10.93pc while the benchmark 10-years PIBs were offering 10.75pc.

The returns were higher due to very high policy interest rate. Interest rate was 13.25pc till mid-March 2020. The rate was drastically reduced to 7pc in next few months which is still unchanged.

Published in Dawn, January 2nd, 2021