Govt raises Rs466bn via PIBs auction

Yields on the fixed-rate Pakistan Investment Bonds (PIBs) jumped on Thursday as volatility in oil markets amid war in the Middle East triggers inflation fears, shrinking room for the central bank to cut interest rates.

The government raised Rs466 billion from the auction of PIBs, exceeding its target of Rs400 billion, according to the auction result published by the State Bank of Pakistan (SBP). The two-year PIB yield added 216 basis points to 12.5 percent. The three-year bond yield traded at 12.5 per cent, up 225 basis points (bps). The yield on the five-year paper rose 175bps, to 12.5 per cent. However, the bids were rejected for the 10-year paper. The 15-year bond yield increased 90bps to 12.4 per cent.

The government rejected bids for the floating rate buyback auction of a five-year PIB.“Investors are concerned about the outcome of the ongoing US/Israel and Iran conflict,” said Awais Ashraf, director of research at AKD Securities Limited, explaining the reasons for the increase in bond yields.

“Investors are gauging that prolongation of the conflict could push inflation upward, along with putting pressure on currency because of a surge in oil prices due to supply disruptions,” Ashraf added.

The SBP kept its benchmark interest rate unchanged at 10.5 per cent this month and expects inflation to remain above 7.0 per cent in the remaining months of FY26 and into FY27.The consumer price inflation is expected to reach 7-7.5 per cent in March, driven by elevated oil prices and energy cost pressures. The inflation rose to 6.99 per cent in February from 5.8 per cent in January.

Investors are focusing on the upcoming SBP policy meeting scheduled for April 27 to see what decision the policymakers will make regarding interest rates. While rates are influenced by various factors, such as the external account, economic growth, and fiscal conditions, in the current context of Pakistan, external stability and inflation dynamics will primarily determine the direction of interest rates.