KARACHI: The government on Wednesday reduced the cut-off yields on treasury bills by up to 31 basis points, bringing the yields for most tenors below 10 per cent for the first time in over four years.

The yields on three-month and six-month T-bills have now returned to single-digit levels, a milestone last seen in November 2021. The 12-month tenor cleared marginally higher at 10pc.

The returns on T-bills generally align closely with the State Bank of Pakistan’s policy rate. Several surveys and analysts suggest that the central bank could reduce the benchmark interest rate by 50 to 100 basis points in the next Monetary Policy Committee meeting.

The reductions in the T-bill rates were as follows: 31bps for the one-month paper, bringing the yield to 9.8pc; 26bps for the three-month tenor, down to 9.89pc; 22bps for the six-month bills, bringing them to 9.94pc; and 16bps for the 12-month papers at 10pc.

Hopes for further softening of monetary policy amplified

In the previous auction, held on Jan 7, the government had also reduced cut-off yields by 29bps for the one-month T-bills, 34bps for the three-month papers, 32bps for the six-month bills, and 33bps for the 12-month tenor.

A report from Arif Habib Ltd noted that the return of single-digit cut-off yields marked the first such occurrence in four years, with the last instance being in November 2021.

The government raised a total of Rs725.7bn in Wednesday’s auction, against a total of Rs1.85 trillion in bids. However, more funds were raised through non-competitive bids than through competitive bids. The government secured Rs293.2bn through competitive bids, with Rs432.5bn raised via non-competitive bids. Of the Rs293.2bn raised through competitive bids, Rs236bn was allocated to the 12-month T-bills.

The double reduction in T-bill yields, along with a 70bps cut in the return on Pakistan Investment Bonds (PIBs), is seen as a clear signal in the financial sector that the central bank may soon cut interest rates.

The SBP will announce its monetary policy on Jan 26. Given the significant drop in inflation, the financial sector is anticipating a potential rate cut of up to 100bps.

“The downward movement reflects cooling inflation expectations, improving macroeconomic stability, and a decidedly dovish monetary policy outlook amid expectations of continued easing by the State Bank,” said the AHL report.

In the last auction, the government raised Rs979.3bn through T-bills and Rs108bn through PIBs, totalling Rs1.087tr.

Compared to last year, government borrowing has accelerated despite a stronger growth in revenue collection during the first half of the current fiscal year. The revenue collected during this period was 10 per cent higher than in the same period of the previous fiscal year. However, the Federal Board of Revenue faced a Rs331bn shortfall against the projected target during July-December 2025-26.

Published in Dawn, January 22nd, 2026