Foreigners invest $245.6m in Pakistan's currency bonds

Global investors poured in $245.6 million into Pakistan's currency bonds in the first 10 months of the current fiscal year as they were attracted to higher yields and economic recovery, according to the official data.

However, the foreign investors pulled $21.5 million out of Pakistan's long-term government securities in the same period this year. Pakistan investment bonds (PIBs) attracted $4.9 million foreign investment in April against outflow of $5.3 million, according to the latest figures from the State Bank of Pakistan.

Analysts said the appetite for the longterm paper from foreign investors shows signs of recovery. Increasing demand for such bonds means the government pays out higher interest to attract buyers. A higher return on PIBs is the biggest attraction for the global investors as the interest rates in the United States and Europe have been set at zero percent. The 10-year US treasury yield was trading around 1.65 percent.

Saad Hashemy, an executive director at

BMA Capital said two key aspects are important for foreign investment in government securities or carry trades: PKR level and interest rates. Both have been favorable for carry trades this year, Hashemy said.

"Interest rates have nudged up where 10-year paper is now trading close to 10 percent, which was 8.7 percent in the beginning of the fiscal year. Further, rupee has also shown strength and stability of late that greatly helps improve investor sentiment," he added. "As long as interest rates remain at current levels and rupee remains stable/strong, prospects of further investment in government securities remain favorable."

The rupee is expected to trade at 160 against the dollar by end-June 2021. No change in the policy rate in May is on the cards due to rising cases of Covid-19. Some analysts anticipate the monetary policy remains accommodative in the entire course of 2021.

Analysts said the overseas investors are not taking the resurgence in the Covid-19 cases and tightening of lockdown measures in their accounts when investing in the country's bond market. They are optimistic the economy won't hit hard from the impact of the covid-19. Their appetite for the PIBs shows the foreign investors are not seeing the pandemic-induced economic slump as longer-term potential for the economy.

The SBP's data showed that the gap between the inflows and outflows of hot money inflows is narrowing down. Foreign investors put $$774.67 million in Treasury Bills and PIBs in July-April FY2021, while taking $$810.81 million out of these securities in the same period of this year.

Foreigners sold net $36.14 million in government securities in the current fiscal year to date.

The short-term papers are not gaining so much appeal from the global investors. Foreign investors bought $529.03 million worth of T-bills in July-April FY2021, while they sold $$789.26 million short-term papers. T-bills inflows stood at $32.2 million in April. That compared with outflows of $65.54 million in the same month.