The federal government raised Rs789 billion through the auction of fixed-rate Pakistan Investment Bonds (PIBs) on Tuesday, accepting bids well above its target as yields increased across most tenors despite easing inflation in July.

According to the auction results, the government received bids worth Rs1.521 trillion against a target of Rs400 billion, ultimately accepting Rs789 billion. However, all bids for the two-year PIB were rejected.

The cut-off yield on the three-year PIB increased by 26 basis points (bps) to 11.745%, while the five-year bond rose 17 bps to 11.800%. The 10-year PIB settled at 12.300%, up 16 bps, and the 15-year bond climbed 20 bps to 12.485%.

The 15-year tenor attracted the largest allocation, with the government accepting Rs400 billion against a target of only Rs50 billion, indicating a preference for locking in longer-term financing rather than relying on shorter-duration borrowing.

Market participants noted that the accepted yields were 8 to 27 basis points above Pakistan Revaluation (PKRV) rates, reflecting stronger demand from investors for higher returns and resulting in a steeper yield curve.

The rise in yields came despite Pakistan's consumer inflation slowing to 9.2% in July from 11.07% in June. Analysts said the bond market is pricing in future inflationary pressures rather than current data, citing expectations of higher fuel prices, an unfavourable base effect from August onwards, and rising food prices, particularly wheat.

They added that if inflation returns to the 10–11% range, the current 11.5% policy rate would offer limited real returns, reducing the likelihood of further monetary easing in the near term and keeping bond yields biased upward over the coming months.