Government Raises Rs1.9 Trillion in Treasury Bill Auction

The government has raised Rs1.913 trillion through a treasury bill auction, borrowing above its target as banks poured money into risk-free government paper. The auction, held on Wednesday, drew bids of Rs4.867 trillion, nearly three times the amount on offer.

The government had set a target of Rs1.65 trillion for the auction. The amount raised also covered Rs1.195 trillion of maturing bills, leaving fresh borrowing of around Rs718 billion. Non-competitive bids of Rs244.4 billion were included in the total.

Yields climb after the rate hike

The auction reflected the impact of the recent hike in the State Bank of Pakistan’s policy rate. The central bank raised the rate by half a percentage point on October 26, lifting it from 11.5 per cent to 12 per cent. Cut-off yields at Wednesday’s auction rose by up to 61 basis points across all tenors.

The largest share went to three-month bills. The government raised Rs783.5 billion in that tenor at 12.42 per cent. One-month bills fetched Rs473 billion at 12.10 per cent, six-month bills raised Rs169.5 billion at 12.65 per cent, and twelve-month bills brought in Rs242.7 billion at 12.89 per cent.

When the central bank raises its policy rate, the return on government paper rises with it, because banks demand higher yields to lend to the state. The twelve-month yield of 12.89 per cent now sits close to 90 basis points above the new policy rate.

Why banks prefer government paper

The huge volume of bids surprised market watchers, but the reason is straightforward. Banks are eager to park their funds in government securities, which carry no risk of default and now pay a higher return, rather than lend to private businesses.

That preference has a cost for the wider economy. When banks can earn a safe return from the government, they have less reason to take on the risk of lending to companies, farmers and small traders. Private-sector borrowing therefore grows slowly, even when the economy needs investment.

Figures from earlier this year underline the point. In the last financial year, the private sector borrowed Rs1.4 trillion from banks, up from Rs1 trillion the year before, but most of that went to working capital rather than long-term investment. The government, meanwhile, keeps borrowing heavily, and its domestic debt pile grows each year.

The contrast with the previous auction is also telling. At the October 14 auction, the State Bank raised Rs685.5 billion, with the twelve-month bill clearing at 12.50 per cent. Two weeks later, the same tenor pays 12.89 per cent, and the total raised has nearly tripled. The shift shows how quickly the rate hike has fed through to the government’s borrowing costs.

What the treasury bill auction means for savers and borrowers

A treasury bill is a short-term loan to the government. Banks and other investors buy the bills, and the government repays them with interest when they mature, in one, three, six or twelve months. Because the state stands behind them, they are treated as risk-free.

Treasury bill yields matter for ordinary savers and borrowers too. They set a floor for interest rates across the economy. When bill yields rise, banks tend to charge more for loans, while deposit rates also edge up. For a government already carrying a large debt burden, higher yields mean higher interest payments in the budget.

What happens next

Related coverage from Feature Pakistan

• The State Bank governor says economic data has improved despite shocks.
• Economists had warned that more rate hikes may follow if oil stays expensive.
• The stock market rallied as the PSX gained 1,270 points on easing policy fears.
• In energy, PPL reported Rs99 billion in profit and new discoveries for the last financial year.
• Fuel prices also moved this week, with petrol and diesel prices for October 29 revised under the daily pricing system.

Frequently asked questions

What is a treasury bill auction?

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• Dawn, “Govt raises Rs1.9tr” (29 October 2026): https://www.dawn.com/news/2040569
• Dawn, “Govt keeps treasury bill returns higher over policy rate” (15 October 2026): https://www.dawn.com/news/2037216/govt-keeps-treasury-bill-returns-higher-over-policy-rate
• Mettis Global, “SBP raises Rs685bn through MTB auction” (14 October 2026): https://mettisglobal.news/SBP-raises-Rs685bn-through-MTB-auction-64206
• Mettis Global, “Half a point, and a longer road to target” (27 October 2026): https://mettisglobal.news/Half-a-point-and-a-longer-road-to-target-64542