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KARACHI: The government raised Rs639 billion through the auction of Pakistan Investment Bonds (PIBs) on Friday — more than double the Rs300bn target — amid strong demand from banks for long-term papers, supported by the State Bank’s decision to keep interest rates unchanged.
Despite a real interest rate margin of around 7pc — between the 11pc policy rate and current inflation — banks continued to chase long-tenor bonds, reflecting expectations that rates may stay higher for longer.
The sizeable spread remains a point of contention for traders and industrialists, who are urging a substantial rate cut to ease borrowing costs.
The cut-off yields for 2-, 3-, and 5-year PIBs rose by 5 to 24 basis points, signalling that the interest rate may remain unchanged for an extended period despite fluctuations in inflation. Conversely, the yield for 15-year bonds was reduced by 5bps.
In this auction, the highest amount — Rs300bn — was raised through 15-year PIBs at a cut-off yield of 12.45pc. Notably, all bids for this tenor were rejected in the previous auction held on July 14.
Govt borrows Rs639bn against PIBs auction target of Rs300bn
The second-highest amount, Rs221bn, was secured through 10-year bonds at a yield of 12.15pc, slightly down from 12.20pc in the prior auction. The government also raised Rs28bn, Rs47bn, and Rs43bn from 2-, 3-, and 5-year bonds at yields of 11.09pc, 11.14pc, and 11.44pc, respectively. The largest increase — 24 basis points — was recorded in the two-year PIBs.
The robust participation reflected the high liquidity available in the banking system, with total bids amounting to Rs2.034tr.
While higher interest rates benefit banks by allowing them to earn more from risk-free government securities, they pose a burden on both the private sector and the government due to increased borrowing costs.
A financial expert noted that a 1pc cut in the interest rate could save the government Rs1tr in debt servicing. “By reducing the policy rate from 22pc to 11pc in FY25, the government has already saved trillions of rupees in interest payments,” he said. The government’s preference for long-term borrowing through PIBs indicates a strategic shift to avoid frequent refinancing and reduce short-term debt servicing pressure.
Published in Dawn, Aug 2nd, 2025
