Foreign investors withdrew a whopping $36.58 million from Pakistan Treasury Bills (T-Bills) during the week ending November 22, 2024, according to data released by the State Bank of Pakistan (SBP). This represents one of the largest weekly inflows of treasury bills in recent months, underscoring the decline in foreign interest in Pakistan’s debt market.
The exodus is due to a sharp decline in government securities yields. In the last auction, the yield on three-month Treasury bills fell to 12.9974%, the lowest level since April 2022. Likewise, the yield on six-month and twelve-month Treasury bills fell to 12.8948% and 12.3500. % respectively, levels not seen since March 2022. This decline in yields reduces the attractiveness of Pakistani treasury bills, especially when compared to the more attractive and stable treasury bills. Interest rates in other emerging markets or developed economies.
Analysts point out that the yield cuts reflect the government’s strategy to reduce borrowing costs amid improving inflation data and a stronger rupee. However, the move made short-term securities less attractive to foreign investors seeking higher returns, especially in a global environment where central banks in developed markets, such as the US Federal Reserve, continue to offer relatively better returns on risk-free assets.
With this latest withdrawal, total net outflows from Treasury bills during the first 22 days of November rose to $58.04 million, a stark reversal from the inflows seen earlier this year.
The trend toward declining foreign investment in Treasury bills raises concerns about the sustainability of government debt financing and highlights the need for structural reforms to restore investor confidence. Market participants will be closely monitoring the upcoming auctions and any political signals from the State Bank of Pakistan, which may need to recalibrate its strategy to retain foreign interest in the domestic debt market.