The perception of Pakistan’s risk of default has worsened with the five-year credit default swap (CDS) surging by 30 percentage points in a week to 93% on Monday ahead of the repayment of $1 billion for a maturing international bond early next month. Finance Minister Ishaq Dar and many financial experts have reiterated that Pakistan will not default on any of the international payments and that volatility in the CDS had nothing to do with the country’s default risk. The yield was hovering at less than 10% before the Covid-19 outbreak in February 2020 in Pakistan, when the investors had high confidence in Pakistan’s capacity to repay them. Yields on the other two bonds worth a total of $2 billion maturing in 2024 and 2025 also increased during the day. Arif Habib Limited Head of Research Tahir Abbas said that the “CDS is a premium that investors pay to insure their investment in bonds against the risk of default”.

Source: The Express Tribune November 22, 2022 08:59 UTC