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Pakistani bonds take a hit as Afghan refugee crisis looms

The fall of the Ashraf Ghani regime and the ascension of the Taliban has instilled fear of consequences among investors for the bordering Pakistan, as the country's dollar-based sovereign bonds became "biggest losers in Asia" on Monday.

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Pakistan’s sovereign dollar bonds face selling pressure on Monday as the situation in Afghanistan remains fluid, after the overthrow of the Ashraf Ghani government in Kabul, and the Taliban has ascended to power.

This has led to market reaction as the prices of five, ten, and thirty-year maturity papers dropping 1.4pc, 1.7pc, and 1.8pc, respectively.

International media agency Bloomberg reported the head of asset management at a Dubai-based investment bank saying, “Investors are concerned over any impact on law and order in Pakistan, and whether global forces will try to isolate Pakistan.”

The Bloomberg Barclays index marked Pakistan’s dollar bonds as the biggest losers in Asia on Monday, saying that this is the biggest decline since the government priced the notes in March.

It is worth mentioning that the country has sold these three bonds with three different maturity durations to get rid of $2.5 billion in debt.

Similarly, Financial Times has reported that that the increased refugee crisis emerging from Afghanistan may lead to financial strain on neighboring countries like Pakistan.

Similarly, there is a concern for the Western retaliation upon the situation against Pakistan, as many countries hold it responsible for providing a safe haven for the Taliban, FT added.

It said that Pakistan’s dollar-denominated bonds fell by about 1.6pc to just above 100 cents on the dollar, with some longer-dated issues sinking to their lowest prices in nine months.

The yield on a 10-year bond issued in April this year, which moves in the opposite direction to the debt’s price, climbed by about a quarter of a percentage point to about 7.3pc.

The report said the country’s $8.8bn of dollar bonds have now fallen by about 4pc since mid-June.

Read More: Afghanistan: Implications of a global failure for US and Pakistan! – Gen Tariq Khan

It is however worth saying that before the emergence of the recent sell-off caused by the impending refugee crisis, the country had some of the highest bond yields among emerging economies that are not considered to be at immediate risk of default.

In the stock market too, analysts believe that the market performance is likely to remain range-bound given the deteriorating situation in Afghanistan, and the uncertainty surrounding the IMF review (likely to commence from Sep’21).

Pakistan’s leading securities firm, Arif Habib Limited reported that the fears of uptick in violence in Afghanistan have been put to rest with the peaceful transition, and they, “think that this would help rebuild confidence in markets.”

The report by AHL added, “Furthermore, mending fences between Pakistan and the US should commence soon and this would also fuel confidence in the investment climate”