Govt introduces first ever 15-year-zero coupon bond

KARACHI: The government sold its first-ever 15-year zero-coupon bond on Wednesday to diversify its investor base with creative financing instruments and enhance debt management.

The government was able to raise more than Rs1.2 trillion from a large auction of government bonds, the finance ministry statement said. It involved the issuance of a new 15-year zero-coupon bond, a first for Pakistan. The bond was in strong demand by investors and raised more than Rs47 billion, it added.

The bond was priced at 12.7 per cent. “This new bond does not pay interest annually.“ Rather, investors are paid a lump sum after 15 years. It aids the government in lowering short-term payments and better planning finances.

The positive response indicates that investors have faith in Pakistan‘s economy and reforms,” it added. “This is part of the government‘s overall strategy to lower risks of borrowing, lengthen debt repayment terms, and encourage Islamic and long-term products,” it added.

Returns on other government securities also fell, reflecting optimism in the financial markets regarding the decline in inflation and lower interest rates in the future. Yield fell in the fixed rate Pakistan Investment Bonds (5-year down 44bps, 10-year down 9bps), reflecting investor optimism regarding monetary easing.

Pakistan’s debt, says the government, is becoming more stable. The domestic debt repayment period, the average of which was 2.7 years a year ago, has now grown to 3.75 years, easing the pressure to repay loans sooner.

 In addition, pension funds and insurance firms, in addition to the banks, are now also investing in the government‘s bonds. This diversifies financial risk and makes the local investor base deeper.

Finance Minister Senator Muhammad Aurangzeb stated: “This is a significant step in making the financial system of  Pakistan stronger and more resilient.

We are pioneering new, intelligent means of borrowing that decrease risk and provide investors with better choices. Our objective is to deal with public debt prudently, develop Islamic finance, and bring in more long-term investment to assist in the economic growth of the country.”

The finance ministry is also developing more products to enable common citizens to invest in government bonds, particularly  Islamic ones, for promoting savings and financial inclusion