Default risk up as bond yields soar
Default pakistan bond interest 1 billion The USD hit a record high of 119.5% in the international market, signaling an increased risk of default on foreign debt repayments as the International Monetary Fund (IMF) loan program, which ends on March 30, is being revived. June. Arif Habib Limited (AHL) reported that the yield on the 10-year bond maturing in April 2024 rose by 2.9 percentage points to 119.5 percent.
The bond’s price fell by almost half, to 50.1 cents per dollar, compared to the original rate of $1 each. According to the sources, the price was 55 cents on June 15. The interest rates of the country’s other two bonds maturing in 2025 and 2026 have also increased and decreased. This reflects investor concerns that Pakistan’s unsustainable foreign debt is increasingly weighing on the economy, which is the second largest in South Asia.
However, yields on the remaining five bonds maturing between 2027 and 2051 fell slightly, suggesting that the ongoing economic and financial crisis may gradually ease over the next few years, leading to a potential recovery. Tahir Abbas, head of research at AHL, told The Express Tribune that rising interest rates and falling prices of near-maturity bonds indicate that global investors are shrugging off concerns about potential defaults.
He recalled Prime Minister Shehbaz Sharif’s last-ditch effort to revive the crucial $6.7 billion IMF loan program before its official expiration on June 30. However, it remains highly uncertain whether these efforts will be successful or futile given the limited time remaining before the program deadline.
Abbas mentioned that the recent meeting between the prime minister and influential diplomats was part of a contingency plan, or “Plan B,” aimed at drawing attention to the growing need for external financing in case the IMF program expires on June 30. ends prematurely. .If the program stalls, Abbas warned, the economic and financial crisis will worsen, putting further pressure on bond yields and pricing.
Published in EDP BLOGS on June 21, 2023.
