Pakistani Dollar Bonds Up 30%, Best in Asia

Pakistani dollar bonds have surged 30 percent this year, the highest in Asia, due to markets’ positive response to the International Monetary Fund’s initial approval of a new three-year bailout last month, reported Bloomberg. Fund manager Mackay Shields predicts the bonds to rise as high as 85-90 cents on the dollar provided a favorable market environment. For further gains, Pakistan must adhere to stringent reform measures and secure long-term financing assurances from bilateral creditors before the IMF board’s final approval of a new $7 billion loan package, expected by the end of August. UBS Asset Management’s head of fixed income for emerging markets and Asia Pacific said the commitment to the IMF program is crucial for continued capital gains for Pakistan. The new loan package is anticipated to give the struggling coalition government the necessary leeway to stabilize the economy and manage its growing debts. Eric Fang, a fund manager at Eastspring Investments, predicted that bonds will trade within a range as reforms proceed, with coupon income potentially offering double-digit returns over the medium term. Pakistan’s 2031 bond remained steady at around 77 cents on the dollar on Tuesday, while the 2051 bonds traded flat at 72 cents, per Bloomberg data. Investors are also closely monitoring Pakistan’s potential return to capital markets following Fitch Ratings’ upgrade to CCC+ from CCC. S&P Global Ratings has affirmed its current rating at CCC+. Central bank Governor Jameel Ahmad said Pakistan might consider a Eurobond sale once the overall credit rating improves. Philip Fielding, co-head of emerging markets at Mackay Shields in London, noted that fresh foreign-currency issuance could help narrow Pakistan’s debt spreads.