T-bills see foreign outflows for fourth straight month

KARACHI: Pakistan’s short-term local government bonds recorded net foreign outflows for a fourth consecutive month in June, driven by investor caution amid a sharp decline in interest rates caused by falling inflation and concerns regarding the Pakistani rupee.

Foreign investors invested $24.271 million in Treasury bills as of June 27 but divested $113.4 million, leading to a net outflow of $89.1 million, data from the State Bank of Pakistan showed on Friday.

Between July 1, 2024 and June 27, 2025, investors purchased $1.279 billion in T-bills but withdrew $1.586 billion, resulting in a total net outflow of $307 million.Pakistan has cut its key interest rate from a high of 22 per cent to 11 per cent over the past year, as inflation declined from 38 per cent in May 2023 to 3.2 per cent in June 2025.

“Foreign investors continued to withdraw from T-bills, with net outflows of $89.1 million in June 2025, following $9.9 million in May, $187.9 million in April, and $197.4 million in March, marking the fourth straight month of outflows totalling over $480 million,” said Saad Hanif, head of research at Ismail Iqbal Securities.

Hanif said that the sustained selling of T-bills likely reflects investor caution due to the significant 11 percentage points reduction in policy rate since June 2024. This has led to lower T-bill yields, compounded by worries about the stability of the Pakistani rupee.

“Foreign investors have pulled back from fixed income securities as the yield spread between US Treasuries and domestic bills narrowed from nearly 15 per cent a year ago to 6.5 per cent now, driven by currency concerns stemming from elevated external debt repayments during the last quarter,” said Awais Ashraf, director of research at AKD Securities Limited.

“However, we anticipate a reversal in these outflows, supported by a decline in the country’s CDS [credit default swap] to 5.71 per cent and easing currency pressures due to continuous improvement in foreign exchange reserves and credit rating upgrades,” Ashraf added.