Pakistan’s dollar bond gains ground as political dust settles

Pakistan’s dollar bond experienced a notable upward movement in the international market as the political dust started to settle after the two big political factions agreed to form a coalition administration at the centre. 

Data from Tradeweb highlighted that the bonds set to mature in 2031 experienced the most significant uptick, climbing 2.7 cents to reach 61.7 cents on the dollar.

In parallel, the notes due in 2026 also gained 2.6 cents, bringing their value to 76.95 cents on the dollar. 

The political parties PMLN and PPP on Tuesday finalised an agreement to establish a new government. This arrangement paves the way for Mr Shahbaz Sharif to potentially become a prime minister for a second term, supported by coalition partners. Meanwhile, Mr Asif Ali Zardari from the PPP is set to be the coalition’s nominee for the presidency. 

Just a few days back, Bloomberg reported that the South Asian nation’s dollar bonds delivered some of the best returns in emerging markets last year, gaining over 90%.

They carried much of that momentum through January as the IMF made its final disbursal under a program that also facilitated bilateral finance from friendly countries, bringing Pakistan back from the brink of default.  

Additionally, Bloomberg quoted Goldman Sachs saying that Pakistan’s dollar bonds will rebound, overcoming a fractured election mandate, as the leaders of the emerging coalition understand the gravity of the economic crisis and will work together to secure IMF aid.

On the flip side, Fitch Ratings said that the close outcome of Pakistan’s election and resulting near-term political uncertainty may complicate the country’s efforts to secure a financing agreement with the IMF.