KARACHI: Pakistan’s short-term local government bonds saw a resurgence of foreign interest this month as easing tensions in the Middle East improved investor appetite.
Treasury bills (T-bills) attracted net inflows of $24.6 million as of April 3, compared with net outflows of $251.9 million in March, according to the latest data from the State Bank of Pakistan (SBP).
Overseas investors poured $34.9 million into treasury bills by April 3 but withdrew $10.4 million.
Foreign investment has not only turned positive in T-bills. Overall, cumulative inflows in bonds and equities amounted to $39.1 million, while outflows totalled $28.1 million. In total, foreign investors purchased T-bills, Pakistan Investment Bonds (PIBs), and equities worth $10.9 million.
Foreign inflows into Pakistan’s T-bill market remain highly volatile and opportunistic, with flows swinging sharply between inflows and outflows over recent months, said Saad Hanif, head of research at Ismail Iqbal Securities Limited.
“After heavy exits in early 2025, particularly in March and April, foreign participation gradually recovered in the second half of the year, peaking in October and staying supportive into early 2026,” Hanif said.
“However, the sharp outflow in March 2026 once again highlights the fragility of these flows, likely driven by profit taking, changing global risk sentiment, and rising concerns around external stability amid higher oil prices,” he added. “Although a slight recovery is visible in April, the overall trend underscores that these inflows are largely driven by short-term yield considerations and remain highly sensitive to interest rate differentials, exchange rate expectations, and global liquidity, limiting their sustainability as a stable source of external financing.”
In March, the conflict in the Middle East prompted significant sell-offs in emerging market bonds and equities, including those in Pakistan. The country also witnessed border tensions with Afghanistan that same month, resulting in foreign outflows from T-bills and PIBs despite the attractive yields on these government securities.
However, the investor risk appetite for emerging market bonds, including Pakistan, has increased after a sharp decline in oil prices amid a temporary ceasefire between the US and Iran. This highlights early signs of relief not only for global markets but also for Pakistan in terms of inflation and external account outlook.
