High discount rate attracts foreign investors to domestic bondsBreaking

May 07, 2024

Foreign investors have shown greater inclination towards domestic bonds during the current fiscal year (FY24) despite the soaring equity market thanks to attractive discount rates. Foreign investments in treasury bills soared to $20 million, surpassing the inflow observed in equities during April 2024. Talking to WealthPK, Dr Eatzaz Ahmed, a former State Bank of Pakistan chairperson, emphasised the significance of this pattern amidst the current upswing in the equity market. “This surge has attracted the interest of both local and foreign investors. Despite this, investments in treasury bills continued to prevail in April, with the equity market garnering $16.9 million within the first nine days.” “The shift towards domestic bonds, particularly treasury bills, gained prominence in the latter half of the current fiscal year as foreign investors redirected their focus. With yields of up to 22%, treasury bills have become an attractive option for both domestic and foreign investors alike,” he pointed out. From July to April 9 of the current fiscal year, total T-bills inflows amounted to $183.6 million, with a significant portion coming in the latter half.

Meanwhile, domestic financial institutions and the corporate sector have injected approximately Rs4.8 trillion into government bonds. The cut-off yield has hovered around 22%, indicating no immediate signs of an interest rate cut. Talking to WealthPK, Aurangzeb Kakar, an assistant director at SBP, noted that the recent increase in foreign investment in treasury bills can be attributed to the stability of the exchange rate market. According to SBP data, inflows in the equity market during the July-April 9 period stood at $360.6 million, maintaining the market at record levels. Despite this, international rating agencies have yet to revise the country’s rating upward since its downgrade at the start of this current fiscal year. Aurangzeb expressed optimism that favourable economic advancements, particularly productive discussions with the International Monetary Fund for a long-term loan programme, could attract increased foreign investment into domestic bonds. Finance Minister Mohammad Aurangzeb, who led a delegation to Washington for negotiations with the IMF, expressed optimism for a new loan agreement, with another meeting slated for May this year. He said stable exchange rates were also deemed crucial to maintaining investment appeal.

Credit: Independent News Pakistan