Foreign inflows in T-bills cross $1bn

KARACHI: Foreign inflows into Pakistani debt instruments crossed the $1 billion mark this fiscal year, latest data released by the State Bank shows.

Debt auctions have been attracting foreign inflows since July when interest rates hit a peak of 13.25 per cent, with the pace accelerating every month. Almost all the foreign inflows in government debt were in short-term Treasury bills, with tenors of up to one year maximum.

The latest data issued by SBP shows the country received $1.097bn investment in T-bills from July 1 to Nov 19. In the auction held on November 20, cut-off yields on three-, six- and 12-month papers were 13.51pc, 13.28pc and 13.24 pc, respectively.

In the wake of global low interest rates, the returns on T-bills look highly attractive.

The SBP kept the interest rate unchanged at 13.25pc a second time in its bimonthly monetary policy announced on Nov 22.

Pakistan is one of the few countries in the world where interest rates have gone up in the past six months. The US Federal Reserve has cut interest rates three times this year, sparking a “race to the bottom” among other central banks around the world.

According to a recent Reuters report, 37 central banks around the developing world showed 14 rate cuts till the month of August. The cuts began when a cycle of tightening ended in early 2019. Many countries are now offering negative real interest rates after these cuts, sparking a search for yields amid collapsing returns from sovereign lending.

The inflows in Pakistan have buoyed the foreign exchange reserves which have been increasing gradually. The holdings of SBP rose to $8.44bn on Nov 15, from $7.8bn in May.

Topline Securities CEO Mohammad Suhail attributed the large investment in T-bills to “better marketing by SBP and the banks.”

“T-bills were not marketed in the past, even when interest rates were high as in 2008 and 2014. The foreign investors were actively invited to invest in the T-bills which offer higher returns today.”

Most of the money came from investors based in the USA and UK, with the former accounting for $612.683 million in T-bills while inflows from the latter clocked in at $476.05m.

Other than these two, investors from the UAE parked $5.06m in T-bills, those from Ireland registered $2.36m while $436,000 came from Cayman Islands.

A small amount, $3.19m, came in longer-tenor Pakistan Investment Bonds entirely from US-based investors. All others opted for short-term T-bills.

The government also got some success in increasing the foreign direct investment which helped improve its balance of payments. The FDI soared to $650m during July-October, compared to $192m in same period of last fiscal year.

Foreign investment in equities has shown more volatility. Inflows in the period July to November were $355.84m while outflows stood at $363.53m. The cumulative net flows in the three categories of equities, T-bills and PIBs were $1.079bn between July and November.