Govt launches historic 15-year Zero-Coupon Bonds

The federal government has successfully raised more than Rs1.2 trillion through a major auction of government bonds, marking the historic introduction of 15-year Islamic Zero-Coupon Bonds.

This new financial instrument, unveiled for the first time on Wednesday, has been met with overwhelming interest from investors, collecting over Rs. 47 billion through this product alone.

According to a statement issued by the Ministry of Finance, the newly introduced Shariah-compliant bond does not provide annual profit payments. Instead, investors receive a lump sum payment at the end of the 15-year term.

In other words, a zero-coupon bond is a debt security that doesn't pay periodic interest payments (coupons) to the investor.

Instead, it is sold at a discount to its face value (the amount repaid at maturity) and matures at its full face value.

The difference between the purchase price and the face value represents the investor's return.

This approach not only aligns with Islamic financial principles but also eases the government’s burden of short-term debt repayments and allows for more effective long-term financial planning.

 The launch of the zero-coupon Islamic bond is part of a broader strategy aimed at extending the maturity profile of public debt, reducing refinancing risks, and promoting long-term, risk-mitigated financial products within the domestic capital market.

The auction results also indicated a decline in yields on other government securities, signaling that the financial markets anticipate easing inflation and potentially lower interest rates ahead.

The Ministry of Finance highlighted that the average maturity of domestic debt has improved significantly—from 2.7 years last year to 3.75 years now—contributing to greater debt stability and reducing the government’s exposure to short-term rollovers.

Importantly, investment in government bonds is no longer limited to commercial banks.