Pakistan Investment Bonds attract $12.7m after hike in yields

KARACHI: After a recent increase in the cut-off yields, the Pakistan Investment Bonds (PIBs) attracted over $12.7 million foreign investment in the first week of this month helping the country’s external account to improve its reserves, data issued by the State Bank on Monday showed.

The government has been accumulating long-term borrowing through PIBs and increased the cut-off yields by up to 42 basis points on Feb 27.

The cut-off yield rose to 9.41 per cent for three-year PIBs, 9.9pc for five-year and 10.05pc for 10-year bonds.

For the first time since the Covid-19 pandemic outbreak in March 2020, foreign investments in domestic bonds crossed the cumulative figure of $150m.

However, this time the outflow from PIBs is almost negligible as it was just $0.3m during the current fiscal year. The inflow in PIBs started in November 2020 and has been growing. The latest increase in the PIBs rates increased the real interest rate, making the investment more attractive.

The SBP data shows that entire amount of $12.7m invested in PIBs came from the United States. The Fed Reserve’s interest rate is at the lowest level of 0.25 per cent which could be one of the reasons for higher investment from the US. Out of total inflows of $150.3m in PIBs, around $104m investments came from the States.

The foreign inflow in treasury bills still continued but the outflow is higher. During the current fiscal year, total inflows in treasury bills were $424.2m while the outflows were $628.2m.

Before the pandemic, total inflows – mostly in T-bills – were $3.5bn. However, within a few months most of the investments returned to their origin.

The foreign inflows in the equity market still continue but the outflows are also higher. During the current fiscal year, inflows in the equity market were $398.2m against the outflows of $711.5m, reflecting low confidence in the fluctuating equity market.

Bankers said the inflow through PIBs was encouraging though it may create problems for the next government when the bonds mature.

Pakistan has remained a high-inflation economy which offers higher interest rate and investors, usually banks, are earning most of their profits from government papers.

Banks and other investors have collectively invested more than $14 trillion in the PIBs. However, no data is available that could show which tenure attracted most of the investments. Bankers noted that the three-year PIBs with 9.4pc returns have become very attractive for foreign investors.