Yield on Pak Eurobond increases to 10.4%

Government-backed bond will reach maturity in 2016, distortions in fuel price could hamper progress.

KARACHI: The yield on Pakistan’s Eurobond reached 10.44 per cent on Tuesday, after rising 45 basis points in four days. The government-backed bond will reach maturity in 2016.

“The Eurobond has not yielded double-digit return in over a year,” said an analyst, adding investors are viewing sovereign debt with more caution right now than they have in recent months.

“The government had to roll back fuel prices at a time when international crude prices are strong and looking bullish,” said InvestCap Head of Research Khurram Schehzad. “Distortions in fuel price could hamper the progress achieved in two years and that is what the sovereign ratings are factoring in,” he added.

The country’s credit default swap (CDS) ratio stood at 844.5 basis points on Tuesday. The benchmark which is used as a measure of risk on sovereign debt has gone up from 555.7 basis points over a span of six days, since January 5.

Risk on the country’s government-backed debt had peaked to 850 basis points in April last year on the back of inflows from the World Bank and Asian Development Bank.

“Oil prices look strong in the medium term,” said BMA energy analyst Nurali Barkatali asserting crude oil will hover around $100 per barrel in coming days.

“If the government holds local fuel prices at current levels, even as international crude prices gain strength, the risk on government borrowing will rise further,” Schehzad said.

Published in The Express Tribune, January 12^th, 2011.