Govt buys back Rs351bn T-bills

September 30, 2024 (MLN): The State Bank of Pakistan (SBP) conducted an auction for the buyback of Market Treasury Bills (MTBs) in which it repurchased Rs351 billion against a target of Rs500bn.

The buyback cut-off yield was around 16% for the six- and 12-month papers. These papers were originally sold at around 20-21% rates.

"Our preliminary estimates suggest that this buyback could save the government Rs11.6bn, while also easing the December 2024 debt obligations," brokerage house Arif Habib Limited noted.

The auction attracted bids totaling Rs563.36bn. Of the total amount raised, SBP picked up Rs350bn from competitive and the remaining Rs1bn from non-competitive bids.

While global debt buyback programs typically focus on “off-the-run” bonds with lower liquidity, Pakistan has opted to repurchase shorter-term instruments in its first buyback, AHl said.

It is important to note that these T-bills being repurchased are set to mature in December 2024, a period marked by significant maturities, totaling around Rs4.6 trillion in T-bills, AHL highlighted.

"The impetus for this timing is a recent liquidity boost, we believe, courtesy of a Rs2.7tr transfer from the SBP."

The MTBs Rules 1998 provide for the buyback of MTBs by the Government of Pakistan.

That was the first-ever buyback auction by the central bank in history, aimed at retiring its outstanding debt before its maturity date. This move allows the government to reprofile its debt, potentially benefiting from lower interest expenses in the long run and correcting market distortions.

“The Government of Pakistan's decision to buy back its own T-bills for the first time is a significant development, reflecting an improving cash position and offering various positive implications for the economy,” said Mohammad Sohail, CEO Topline Securities.

“The sharp decline in yields, with 1-year T-bills falling from 23% to around 14% and the 10-year bond from 17% to 12.7%, indicates a faster-than-expected easing in interest rates. This strategic buyback will likely enhance liquidity in the money market, driving yields down further, while improving the government's debt metrics,” he highlighted.

Read: Historic T-bill buyback aims to reprofile Pakistan’s debt

Sohail added that by repurchasing its own debt, the government can optimize its debt profile, potentially reducing the overall debt ratio.

“This approach also shows confidence in the fiscal position, with benefits for both short-term money market operations and long-term fiscal sustainability,” he stated.

He further noted that lower yields might signal greater investor confidence and could encourage more private-sector investment, stimulating broader economic growth.

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