First five-year zero-coupon bond issued

KARACHI: The government issued its first-ever 15-year zero-coupon bond on Wednesday in a bid to diversify its investor base with innovative financing products and improve debt management.

The government successfully raised over Rs1.2 trillion through a significant auction of government bonds, the finance ministry said in a statement. This included the introduction of a new 15-year zero-coupon bond, the first of its kind in Pakistan. The bond received strong demand from investors, raising over Rs47 billion, it added.

The bond issued at 12.7 per cent. “This new bond does not pay interest every year. Instead, investors receive a lump sum at the end of 15 years. This helps the government reduce short-term repayments and plan finances better. The strong response shows that investors are confident in Pakistan’s economy and reforms,” it said. “This move is part of the government’s broader strategy to reduce borrowing risks, extend the repayment period of debt, and promote Islamic and long-term financial products,” it added.

Yields on other government bonds also dropped, indicating optimism in financial markets about falling inflation and lower interest rates in the future. Yield declined in the fixed rate Pakistan Investment Bonds (5-year down 44bps, 10-year down 9bps), signalling investor confidence in monetary easing.

According to the government, Pakistan’s debt is now becoming more stable. The average repayment period of domestic debt has increased from 2.7 years last year to 3.75 years now, reducing the pressure to repay loans quickly. Moreover, more pension funds and insurance companies -- rather than just banks -- are now investing in government bonds. This helps spread financial risk and deepen the local investor base.

Finance Minister Senator Muhammad Aurangzeb said: “This is a major step forward in making Pakistan’s financial system stronger and more resilient. We are introducing new, smart ways of borrowing that reduce risk and give investors more options. Our aim is to manage public debt responsibly, promote Islamic finance, and attract more long-term investment to support the country’s economic growth.”

The finance ministry is also working on more products to allow ordinary citizens to invest in government bonds, especially Islamic ones, to encourage savings and financial inclusion.