T-Bills
Treasury Bills (T-Bills)
Definition
Short-term government debt instruments (3-month, 6-month, 12-month) issued at a discount to face value, with no coupon payments, used to finance the government's short-term borrowing needs.
Simple Explanation
T-bills are how the Pakistani government borrows money for short periods. Instead of paying interest, the government sells the T-bill at a discount. For example, you pay PKR 95 today for a T-bill that pays back PKR 100 in 3 months. That PKR 5 gain is your return (equivalent to ~21% annualised). The SBP conducts weekly T-bill auctions; banks, mutual funds, and institutional investors participate. The cut-off yield at auction reflects market expectations for short-term rates.
In Pakistan
T-bills are Pakistan's most actively traded government securities. The SBP holds weekly auctions (Primary Dealer network). At the peak of the 2023 rate cycle with a 22% policy rate, 3-month T-bill yields reached ~22–23%. Banks poured money into T-bills instead of lending to the private sector (because T-bills offered near-risk-free returns comparable to or above private lending rates). This 'crowding out' of private sector credit was a major criticism of sustained high rates. T-bill yields are now a benchmark for NSS (National Savings Scheme) rates.
Example
At a T-bill auction, if the government needs to borrow PKR 200 billion for 3 months and banks bid at yields ranging from 20–22%, the SBP will accept bids up to the 'cut-off yield' it's willing to pay. Banks that bid below the cut-off get their T-bills; those above are rejected. The cut-off yield becomes the market benchmark for 3-month rates.
Frequently Asked Questions
What is the difference between T-bills and PIBs?
T-bills are short-term (3, 6, 12 months), issued at a discount, with no coupon — the return is purely capital gain. PIBs (Pakistan Investment Bonds) are long-term (2, 3, 5, 10, 20, 30 years), pay a semi-annual coupon (interest payment), and are used for the government's medium-to-long-term financing. T-bill yields reflect near-term rate expectations; PIB yields reflect long-term rate and inflation expectations.