Pakistan’s Default Risk Falls Sharply to 71% As Nerves Briefly Subside

Pakistan’s chances of defaulting on its debt sharply reduced in the last 24 hours after nerves apparently subsided following Finance Minister Ishaq Dar’s repeated claim that the real value of the dollar is Rs. 190. According to data by Arif Habib Limited (AHL), Pakistan’s benchmark 5-year Credit Default Swap (CDS) dropped significantly on 22 November by a whopping 5,224 basis points to 71.64 percent. The instrument has chopped off over 52 percentage points in a single day and shows that investors are once again somewhat willing to take on Pakistan’s default risk at a price level of over 70 percent, which is still a mindboggling figure. In today’s terms, a 71 percent CDS for Pakistan means that someone is willing to pay 71 cents to insure their $1 loan. Perhaps more importantly, it also means that someone is willing to take on this risk at a price level above 70 cents, which is still a maddening yield to maturity for a country that hasn’t defaulted yet. The fall reflects a short-term ‘stronger’ risk profile and a debt sustainability assessment in the Fitch-denominated ‘Caa1’ category, which was assigned to Pakistan’s dollar bonds earlier last month. It also reflects a one-notch uplift based on investor expectations that market access will be supported during brief episodes of market volatility through ad hoc actions of Pakistan’s government and associated financing agencies. A high-profile investment banker told ProPakistani, He recalled that on Monday experts were tweeting logic for a loan maturity of $1 billion just a couple of weeks away, and how CDS at 92 percent didn’t make sense. “Today’s sharp decline indicates that mainstream mathematics has failed. Feelings, sentiments, or even perhaps “deep market manipulators” have upped their game to engineer another FATF episode,” he commented. An exceptionally strong economic and fiscal turnaround is the need of the hour, with the country reporting an improved current account deficit of $0.57 billion despite various trade metrics burdening progress. This positive may perhaps pivot to better highs once the central bank announces its monetary policy on Friday. The yield (rate of return) on the 5-year Third Pakistan International Sukuk is currently around 145.44 percent. It was at 105 percent a day earlier. As of 22 November, the yield on the five-year third Pakistan International Sukuk Company Limited increased by 3,969 basis points to 145.44 percent. The yield on a 10-year Eurobond maturing on April 15, 2024, decreased from almost 64 percent to 63.94 percent. The yield on the 10-year Eurobond maturing on September 30, 2025, increased from 46.42 percent to 46.77 percent.