Govt buys back Rs475bn T-bills

October 10, 2024 (MLN): The State Bank of Pakistan (SBP) conducted an auction for the buyback of Market Treasury Bills (MTBs) in which it purchased Rs475 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.

The auction attracted bids totaling Rs1.37 trillion. SBP picked up Rs475bn from competitive while no non-competitive bids were received.

It is important to note that these T-bills being repurchased are set to mature in December 2024, a period marked by significant maturities, according to brokerage house Arif Habib Limited.

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

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

Last week, the government conducted first-ever buyback auction by the central bank in history, aimed at retiring its outstanding debt before its maturity date. These buybacks allow 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 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. The 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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