Trading in international bonds ‘distressed’ but no harbinger of default

Pakistan’s international bonds continue to trade at a distressed level despite forceful statements by Finance Minister Ishaq Dar about the unlikelihood of a sovereign default. According to data compiled by Bloomberg, the interest rate on the dollar debt issued by Pakistan is hovering between 30 and 40 percentage points above the US treasury bond of comparable duration. For context, the gap was in single digits at the end of 2021. Any bond that offers a yield exceeding the US treasury rate of similar tenor by 10 percentage points is considered distressed debt i.e. it trades at a significant discount in the secondary market as its issuer carries a high potential for default. Speaking to Dawn on Monday, Optimus Capital Management Ltd Executive Chairman Asif Qureshi said the widening gap between the return on Pakistani bonds with that on the comparable US debt is concerning, but “not a conclusive indicator” of Pakistan’s imminent default.