Pakistan Bonds Decline As Frontier Market Faces Sell-Off

Pakistan's bonds experienced a significant decline on Monday, mirroring a broader sell-off in frontier markets. This downturn was largely triggered by concerns over potential sweeping tariffs imposed by the US government.

Key Points:

• Sharp Decline: Pakistan bonds fell by more than 13 cents, marking the most substantial single-day drop across various maturities since early 2022.
• Global Context: The sell-off affected hard-currency debt issued by smaller, riskier emerging markets, pushing yields into double digits.
• Tariff Concerns: US President's stance on tariffs contributed to the market uncertainty and investor apprehension.

Impact and Analysis

The turmoil in the bond market could worsen existing funding challenges for countries with similar economic profiles, such as Angola, Gabon, and Senegal.

James Wilson from ING noted, "The macro volatility hit EM credit hard this week, with a clear risk-off tone meaning HY underperformance, wider spread sand lack of liquidity."

Longer-dated bonds from frontier market governments like Pakistan and Sri Lanka, both significant textile exporters potentially impacted by US tariffs, saw declines exceeding 6 cents. Commodity exporters, including oil exporters Angola and Gabon, and copper producer Zambia, also experienced losses.

Stuart Culverhouse of Tellimer commented, "The dramatic price moves reflect the double whammy of US President Trump’s reciprocal tariffs on the rest of the world and OPEC-induced lower oil prices."

Market Divergence

Following initial tariff announcements, a divergence emerged in the performance of emerging market bonds. High-yield bonds suffered more significant losses, while investment-grade nations' debt performed better, according to Citi.

Rising Unsustainable Borrowing Costs

Currently, yields on benchmark international bonds in nearly all Sub-Saharan African countries, except Namibia and the Seychelles, have surged above 10%. Double-digit yields often signal unsustainable borrowing costs.

Companies with Decreased Stock Value