Nerves temporarily subside as Pakistan’s default risk drops to 71%

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Nerves temporarily subside as Pakistan's default risk drops to 71%
Nerves temporarily subside as Pakistan's default risk drops to 71%

The chances of Pakistan defaulting on its debt have sharply declined in the last 24 hours after Finance Minister Ishaq Dar repeatedly claimed that the dollar is worth Rs. 190.

Arif Habib Limited (AHL) reported that Pakistan’s benchmark 5-year CDS dropped by a whopping 5,224 basis points on 22 November. At a price level of over 70 percent, Pakistan’s default risk is once again somewhat acceptable to investors across the globe after dropping over 52 percentage points in a single day.

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To insure a $1 loan, 71 percent CDS means one will pay 71 cents. In addition, it indicates that someone is willing to take on this risk above 70 cents, still a maddening yield to maturity for a country that has not defaulted.

Pakistan’s dollar bonds were assigned the Caa1 credit rating earlier this month because of a ‘stronger’ short-term risk profile and debt sustainability assessment. During brief episodes of market volatility, Pakistan’s government and associated financing agencies are expected to support Pakistan’s market access through ad hoc actions.

Earlier this week, experts were tweeting logic for a $1 billion loan maturity just a few weeks away, and saying 92 percent CDS didn’t make sense. Mathematics has failed today, as evidenced by today’s sharp decline. A new FATF episode may be being engineered by feelings, sentiments, or even “deep market manipulators,” he informed.

Despite varying trade metrics burdening progress, the country reported an improved current account deficit of $0.57 billion. The central bank’s monetary policy announcement on Friday may pivot the positive to better highs.

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A 145.44 percent yield is currently being offered on the 3-year Pakistan International Sukuk. One day ago, it was 105 percent.

Pakistan International Sukuk Company Limited’s five-year third Sukuk yield increased by 3,969 basis points to 145.44 percent on 22 November. Eurobond yields for 10-year maturities have decreased from nearly 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.

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