T-bills see highest inflows in four years

KARACHI: The country saw a record inflow of foreign investment in treasury bills during the last quarter of the financial year FY24, reflecting attractive returns and stability in the exchange rate.

Pakistan suffered heavily after the outbreak of Covid in 2020 and almost entire investments in domestic bonds left the country. Since then foreign investors have remained away from t-bills and the long-term Pakistan Investment Bonds (PIBs).

But the latest data issued by the State Bank on Monday shows that the total inflows in t-bills exceeded 500 million dollars and surpassed the inflows for the equity market.

T-bills received a total investment of $538.5m during FY24 — from July 1 to June 7. But the first week of June saw an inflow of $64.7m alone — a record amount for any month after Covid.

Last week of June attracts $64m; May receives $285m

Statistics show that inflows for the first half of FY24 were negligible — just $5.9m in July and $9m in November.

The fourth quarter was, however, the most rewarding for inflows in t-bills. The highest amount — $285m — for a single month during FY24 came in May. The country received $25m in April and $96.3m in March. January received almost nothing while February brought in just $6m.

Bankers and analysts believe that the inflows reflected the stability of exchange rate while the rate of returns remained constantly higher during FY24. The exchange rate has hovered around Rs278-279 for the last four months.

The State Bank slashed the policy rate on June 10, but it did not revise the cut-off yields on three-month papers. The SBP cut one basis point for six-month and 41 points for 12-month t-bills at the last auction.

Equity market versus t-bills

The equity market has set up new records over the last several months, but foreign inflows in t-bills remained below the mark. Inflows for equity during FY24 (up to June 7) were $464.4m, while t-bills attracted $538.5m.

At the same time, the outflow from equity was much higher than t-bills. During FY24, the outflow from equity market was $337.2m, meaning the residual amount for equity was just $127.2m.

In case of t-bills the total outflow in FY24 was $94.8m, meaning that the market was able to retain $443.7m.

Data further shows that the highest investment for t-bills came from Britain, with the total reaching $246m during FY24. The t-bills received another significant amount of $107m from Belgium and $107.5m from the USA, while an investment of $49m came from Luxembourg.

Bankers have been opposing suggestions to further bring down the interest rate to 16 or 17 per cent as they believe it will reduce the return on t-bills and make them less attractive for foreign investors.

Published in Dawn, July 2nd, 2024