Foreign investment in bonds jumps to $275m

KARACHI: Trading activity in domestic bonds surged in the first 70 days of 2026-27, with foreign investment, particularly from the United Arab Emirates (UAE), reaching its peak for this period. Despite concerns about the impact of the Gulf war on foreign investment in Pakistan, the period saw $275 million in bond investments. For the first time in a long time, foreign investors opted for long-term Pakistan Investment Bonds (PIBs), despite the risks associated with the regional conflict.

According to the State Bank's latest data, foreign investors poured $151.4 million into Treasury Bills and $123.7 million into PIBs between July 1 and September 11, resulting in a combined investment of $275 million. Iran suffered the most severe consequences of the Gulf war, while the UAE was the second-worst affected nation. However, the UAE emerged as the top investor in Pakistani bonds, with $90 million flowing into PIBs, accompanied by $10 million in Treasury Bills.

The UAE's investment in Pakistani bonds was driven by their perceived risk-free nature and attractive yields of around 12 percent. Financial experts noted that the UAE, particularly Dubai, had seen a decline in investment due to the war, making Pakistan an appealing alternative for those with liquidity. Bahrain, another country affected by the war, invested $30 million in Treasury Bills during the same period. The UK, the second-largest investor, placed $60.7 million in Treasury Bills, while it did not invest in PIBs.

The United States also contributed to the bond market with $8.6 million in PIBs and $23 million in Treasury Bills. Luxembourg was another significant investor, committing $19.4 million to Treasury Bills and $25 million to PIBs. In the first 11 days of September, PIBs attracted $49.7 million compared to $12 million in Treasury Bills.

Experts suggested that the foreign investment trend in Pakistan had shifted despite the ongoing war. While foreign direct investment (FDI) surged by 80 percent to $316 million in August, it was likely a short-term investment strategy aimed at "quick earning and safe exit." The regional situation, they argued, was changing, and the inflows were not sustainable in the long run.