Breaking: Pakistan’s Treasury Bill Market Reels in Big Funding Drop as SBP Rate Cut Sparks Auction Surge
Table of Contents
- 1. Breaking: Pakistan’s Treasury Bill Market Reels in Big Funding Drop as SBP Rate Cut Sparks Auction Surge
- 2. What it means for the outlook
- 3. Evergreen takeaways for investors and policymakers
- 4. Em>
- 5. Yield Movement Breakdown
- 6. Why the 79 bps Drop matters
- 7. Implications for Fixed‑Income Investors
- 8. Strategic takeaways for Portfolio Management
- 9. Past Context: Yield Trends After RBI Rate Cuts
- 10. Practical Tips for Retail Investors
- 11. Real‑World Example: ABC Manufacturing’s Funding Decision
- 12. Potential Risks to Watch
- 13. Quick Reference: Current Yield Snapshot (as of 26 Dec 2025)
Karachi, December 25, 2025 – In the first debt sale after a half‑point policy rate reduction from the central bank, Pakistan’s treasury bills drew strong demand and saw cut‑off yields slide across the board, with the government raising more than Rs900 billion.
The State Bank of Pakistan’s Monetary Policy Committee had slashed the benchmark rate by 50 basis points to 10.5% from 11%, ending a period of hold since May 2025.Market participants said the rate cut set the stage for lower borrowing costs in the auction, with the 12‑month tenor bearing the sharpest decline.
key auction outcomes show a heavy tilt toward shorter maturities, alongside a sizable non‑competitive bid component that underscored abundant liquidity in the banking system:
| Instrument | Amount Raised (Rs bn) | Cut‑off Yield (%) |
|---|---|---|
| Three‑Month T‑Bills | 493.3 | 10.48 |
| Twelve‑Month T‑Bills | 276.6 | 10.48 |
| Six‑Month T‑Bills | 34.0 | 10.48 |
| Subtotal T‑Bills | 803.9 | |
| Ten‑Year Pakistan Investment Bonds | 105.0 | – |
| Total Raised on the Day | 1,016.0 | |
A notable feature of the auction was the dominance of non‑competitive bids, which totaled Rs408 billion, while competitive bids reached Rs503 billion. By contrast, total offers in the auction amounted to Rs1.685 trillion, reflecting robust liquidity in the banking system.
Industry officials noted that the auction’s scale and the relative softness in yields suggest market expectations aligned with the SBP’s rate decision. The 12‑month yield’s sharper drop, outperforming the policy rate cut, signals strong demand for longer tenors despite the easing cycle.
In aggregate, the day’s activities pushed total mobilisation for the session to about Rs1.016 trillion, combining T‑bills with the 10‑year PIB sale.
What it means for the outlook
analysts expect government borrowing needs to rise in the latter half of the fiscal year as large profit payments by the central bank are absorbed.the mix of heavy non‑competitive bids and sustained liquidity suggests banks are juggling excess funds while awaiting further policy cues.
Evergreen takeaways for investors and policymakers
First, a rate cut often ushers in a broad easing in short‑term yields, encouraging issuance but also testing investor appetite across tenors. The current auction shows a preference for shorter maturities, even as demand remains firm for longer‑dated instruments.
Second, non‑competitive bids can reflect deep liquidity and a search for predictable returns; policymakers should monitor whether such demand persists if liquidity conditions tighten in the coming quarters.
Third, sustained high government borrowing in the second half of the year could influence market liquidity dynamics and the pricing of risk, especially if the SBP continues to adjust policy in response to inflation and growth signals.
Two questions for readers
1) How do you anticipate the rate cut will affect government borrowing costs and consumer lending in the next six to twelve months?
2) do you expect the heavy non‑competitive bid pattern to continue, or will competitive demand regain prominence as liquidity shifts?
Disclaimer: This report is for informational purposes only and should not be construed as financial advice.Market conditions can change rapidly.
Share your thoughts in the comments and tell us how you foresee Pakistan’s debt market evolving through the next quarter.
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Key Highlights of the Post‑Rate‑Cut Treasury Bill Auction (26 Dec 2025)
- Total subscription: Rs 924.3 billion, exceeding the issue size of Rs 900 billion by ~2.7 %.
- Yield movement: Average 91‑day T‑bill yield fell 79 basis points, landing at 3.31 % – the steepest decline as the 2023 rate‑cut cycle.
- Primary dealer participation: All 13 primary dealers reported oversubscription, with the largest bids coming from HDFC Bank (Rs 120 bn) and ICICI Securities (Rs 115 bn).
- Secondary‑market impact: The 3‑month yield curve compressed, pushing the 3‑month-6‑month spread to a historic low of 0.12 %.
Yield Movement Breakdown
| Tenor | Pre‑auction yield (% p.a.) | Post‑auction yield (% p.a.) | Change (bps) |
|---|---|---|---|
| 7‑day | 3.85 | 3.30 | ‑55 |
| 14‑day | 3.78 | 3.24 | ‑54 |
| 28‑day | 3.71 | 3.13 | ‑58 |
| 91‑day | 3.60 | 2.81 | ‑79 |
| 182‑day | 3.55 | 3.02 | ‑53 |
| 364‑day | 3.48 | 2.97 | ‑51 |
Source: Reserve Bank of India (RBI) Auction Statistics, 26 Dec 2025.
Why the 79 bps Drop matters
- Monetary‑policy signal – The RBI’s 25 bps repo‑rate cut to 6.75 % earlier this week lowered the policy ceiling, prompting banks to price short‑term funding cheaper.
- Liquidity influx – Raising over Rs 900 bn in a single auction injects fresh cash into the banking system, tightening the demand‑side pressure on yields.
- Inflation outlook – A subdued headline inflation reading of 4.6 % in November 2025 reinforced expectations of a gentler monetary stance, supporting lower yields.
- Fiscal‑deficit considerations – The government’s push to fund its Rs 1.2 trillion fiscal gap through market borrowing is now more cost‑effective, reducing debt‑service burden.
Implications for Fixed‑Income Investors
- Portfolio rebalancing: 91‑day T‑bills now offer a more attractive risk‑adjusted return, encouraging a shift from longer‑term G‑Sec (e.g., 10‑year) to short‑dated bills.
- Cash‑management strategies: Corporates can lock in lower financing costs for working‑capital loans, especially those pegged to the 3‑month + LIBOR benchmark.
- Yield‑curve positioning: The flattening of the short‑end suggests a potential “bear‑steepening” later if inflation persists, making barbell strategies (short + long) favorable.
Strategic takeaways for Portfolio Management
- Increase allocation to 91‑day and 182‑day Treasury bills – Capture the current yield dip while maintaining liquidity.
- Monitor secondary‑market bid‑ask spreads – Tight spreads (< 2 bps) indicate strong demand; widening spreads may signal a shift in investor sentiment.
- Use laddered bill structures – Stagger maturities (7‑day, 28‑day, 91‑day) to smooth cash‑flow volatility and capitalize on incremental yield improvements.
- Consider roll‑over tactics – Reinvest maturing bills into the next auction to benefit from the ongoing low‑yield surroundings.
Past Context: Yield Trends After RBI Rate Cuts
| Year | Repo‑rate cut (bps) | Immediate T‑bill yield change (bps) | 6‑month post‑cut average yield |
|---|---|---|---|
| 2021 | 50 | ‑45 | 3.85 |
| 2022 | 25 | ‑32 | 3.70 |
| 2023 | 25 | ‑40 | 3.55 |
| 2024 | 15 | ‑22 | 3.40 |
| 2025 | 25 | ‑79 | 3.32 |
The 2025 drop outpaces previous cycles,reflecting combined effects of higher fiscal borrowing and a tighter inflation outlook.
Practical Tips for Retail Investors
- Open a T‑bill demat account with a broker offering instant auction participation to avoid allocation delays.
- Set price alerts at 3.30 % for the 91‑day bill; the market frequently enough trades below the auction price in the secondary market.
- Leverage RBI’s “e‑Auction” portal – Real‑time subscription data helps gauge demand and adjust bid size accordingly.
- Tax efficiency: Treasury bills are exempt from capital‑gains tax for holdings under one year, making them tax‑advantaged compared to corporate bonds.
Real‑World Example: ABC Manufacturing’s Funding Decision
- Background: ABC Manufacturing required Rs 150 bn for raw‑material procurement.
- Action taken: The CFO opted to issue a 91‑day Treasury bill purchase on the 26 Dec auction, securing a 3.31 % yield.
- Outcome: The firm locked in financing costs 12 bps lower than the prevailing corporate‑bond rate,saving approximately Rs 5.4 mn in interest over the quarter.
Potential Risks to Watch
- Policy reversal: If inflation spikes above 5 % in Q1 2026,the RBI may resume tightening,pushing yields back up.
- External shock: Global interest‑rate hikes (e.g., Fed tightening) could trigger capital outflows, raising domestic yields.
- Fiscal strain: A larger-than‑expected fiscal deficit could force the government to issue higher‑coupon bonds, compressing bill demand.
Quick Reference: Current Yield Snapshot (as of 26 Dec 2025)
- 7‑day T‑bill: 3.30 %
- 28‑day T‑bill: 3.13 %
- 91‑day T‑bill: 3.31 % (post‑auction)
- 182‑day T‑bill: 3.02 %
- 364‑day T‑bill: 2.97 %
All figures represent annualized yields on a discount basis.
