Market Treasury Bills (MTBs)

Market Treasury Bills (MTBs) are short-term debt securities issued by the Government of Pakistan to borrow rupees for periods of up to one year. They pay no coupon: an investor buys a bill for less than its face value and receives the full face value at maturity, and the difference is the return. The State Bank of Pakistan (SBP) runs the auctions as the government's debt manager, and banks, primary dealers, funds, companies and individuals hold them.

MTBs are Pakistan's version of the Treasury Bills (TBs) issued by finance ministries around the world, including US Treasury bills. They sit at the short end of the government's domestic debt, alongside the longer Pakistan Investment Bonds (PIBs). In Pakistan's public debt statistics they form the main part of floating debt, the borrowing that has to be rolled over within a year.

Think of a gift voucher sold below its printed value. You pay Rs 9,000 today for a voucher that the government promises to cash for Rs 10,000 in a year. Nothing is paid in between; your whole reward is the Rs 1,000 gap you collect at the end.

The government does this because its income and spending never line up perfectly, and it needs a cheap, flexible way to cover the gap for a few months at a time. Investors like the arrangement because the borrower is the state itself, the period is short, and the bills can be sold to someone else before maturity if cash is needed.

The SBP publishes an auction calendar setting target amounts for each tenor. In recent years bills have been offered in 3-, 6- and 12-month tenors, with a 1-month bill added in some auction rounds. Auctions are normally held every two weeks. The steps are:

1. Primary dealers and other eligible banks submit competitive bids stating the amount and the price (or yield) they want; smaller investors can place non-competitive bids through their bank.
2. The government, advised by the SBP, decides how much to accept and sets a cut-off yield for each tenor; bids at or below that yield are accepted.
3. Successful bidders pay on the settlement date, and the bills are credited to their securities accounts.

The cut-off yields are watched closely because they show where the market expects the interest rates to go. According to the Pakistan Economic Survey 2024-25, during July–March FY2025 the market offered about Rs 30.6 trillion in T-bill bids and the government accepted about Rs 10.3 trillion, with 12-month bills making up around 45% of the stock as investors locked in yields ahead of expected rate cuts. The role of primary dealer banks is to bid in every auction and make a secondary market in the bills.

Because MTBs are discount instruments, price and yield move in opposite directions. Using a simple money-market convention, the price of a bill is:

• $P$ is the price paid today.
• $F$ is the face value repaid at maturity.
• $y$ is the annual yield, written as a decimal.
• $d$ is the number of days to maturity.

For a 364-day bill with a face value of Rs 100,000 and a yield of 12%: $P = 100{,}000 \div (1 + 0.12 \times 364 \div 365) \approx 89{,}312$. The investor pays about Rs 89,312 and receives Rs 100,000, a gain of about Rs 10,688. If the yield in the next auction drops to 11%, the price of a similar bill rises to about Rs 90,115. This is the same discount rate idea used to value any future payment.

• Liquidity and regulation. Banks hold MTBs to meet statutory liquidity requirements and to manage liquidity, since bills can be sold quickly or pledged.
• Collateral. MTBs are the main collateral in Pakistan's repurchase agreement (repo) market and in the SBP's own open market operations (OMOs) and in its standing facilities, the overnight reverse repo ceiling and repo facility floor.
• Benchmarks. Auction yields anchor other short rates, including KIBOR, the coupons of floating-rate PIBs (linked to the 6-month MTB yield) and they are a reference point when the government sets profit rates on National Savings Schemes.
• Savings. Mutual funds, especially money market funds, invest heavily in bills, and individuals can buy them through bank-held accounts with a minimum of Rs 5,000.

Retail investors hold bills in an Investor Portfolio Securities (IPS) account with a bank, or through the SBP's InvestPak digital portal. Bills are traded in the secondary money markets until maturity.

MTBs carry very little credit risk in rupee terms, because the government can always repay rupee debt. The main risks are interest-rate risk if a bill has to be sold before maturity, and inflation risk if prices rise faster than the yield. Heavy reliance on short bills also creates rollover risk for the government: a large share of the Pakistani rupee (PKR) debt must be refinanced each year at whatever rate the market sets, which is why debt managers try to lengthen maturities by issuing more PIBs.

• InvestPak (State Bank of Pakistan): Market Treasury Bills
• Pakistan Economic Survey 2024-25: Money and Credit (Finance Division)