Qudsia Bano

Investor appetite has increasingly shifted toward fixed-rate Pakistan Investment Bonds (PIBs), driven by expectations of continued monetary easing by the State Bank of Pakistan (SBP). This shift reflects growing market confidence in a declining interest rate environment, following consistent improvements in inflation and liquidity indicators.

According to the Pakistan Economic Survey 2024-25, the total offers for PIBs during the July-March period of FY25 rose by 49% to Rs23,897 billion compared to Rs16,023 billion last year. Notably, offers under fixed-rate PIBs nearly doubled to Rs7,140 billion, representing 30% of the total, up from 22.8% a year earlier. In contrast, floating-rate PIBs saw a slight drop in their share of the total.

Government data indicates that nearly 39% of the fixed-rate PIBs issued were in the five-year tenor, suggesting that investors are locking in returns before yields fall further. Farhan Javed, Research Fellow at the Institute of Policy Studies, told WealthPK that the increased demand for fixed-rate bonds is a logical outcome of the declining policy rate environment. “With inflation slowing and monetary easing underway, investors are anticipating lower future returns and want to secure higher yields now,” he explained.

“This shift is also a vote of confidence in the SBP’s inflation management.” The central bank has already reduced the policy rate by a cumulative 1,100 basis points over the last year, bringing it down to 13% from a peak of 24%. The easing cycle, supported by improved external balances and fiscal restraint, has encouraged long-term investment in government securities. Saba Ali, a fixed income analyst at First Financial Research (FFR) in Karachi, said the increased activity in longer-tenor fixed bonds shows institutional investors are adjusting their portfolios in anticipation of further rate cuts.

“This is not just speculation; it’s a rebalancing strategy,” she said. “Banks and insurance companies, in particular, are looking to lock in current returns before they fall further in the next quarters.” Saba added that the government’s ability to raise a greater portion of debt through fixed instruments at lower yields could reduce rollover risks and support more predictable fiscal planning. Experts agree that as long as inflation remains controlled and external conditions stable, demand for fixed-income securities will continue to strengthen.

Credit: INP-WealthPk