LAHORE: Pakistan’s dollar-denominated bonds came under selling pressure on Monday as Taliban fighters overthrew the US-backed Ashraf Ghani government in Afghanistan to seize Kabul, with the prices of five, 10- and 30-year maturity papers dropping by 1.4 per cent, 1.7pc and 1.8pc, respectively.

“The drop in prices shows some investors are bracing themselves for the potential Afghanistan fallout on Pakistan,” Fahad Rauf, head of research at Ismail Iqbal Securities, told Dawn from Karachi by telephone.

Pakistan bonds were the worst performers among the emerging-market peers, according to a Bloomberg Barclays index.

“Investors are concerned over any spillover impact on law and order in Pakistan and ‘whether global forces try to isolate Pakistan’ for perceived support of the Taliban,” a Bloomberg report quoted the head of a Dubai-based fixed-income asset management as saying.

Bloomberg reports investors’ concern over possible spillover impact on law and order in country

Pakistan had sold the five, 10- and 30-year notes in April to lift $2.5 billion in debt from the international market. It again raised another $1bn through a tap issue in early July. The prices of Pakistan’s papers rose soon after the issue of the debt to peak in mid June.

“Pakistan bond prices are under pressure ever since and are down by 3.1pc, 5.3pc and 6pc from their June peak for the five, 10- and 30-year maturity notes,” Mr Rauf said. However, according to him, “the earlier decline in the bond value was linked to the expectations of an early monetary tightening on rising inflation by the US Fed rather than the Afghan situation; (it) was not just limited to Pakistan but also to other similar markets.”

“But the recent fall is clearly linked to the emerging situation in Afghanistan and its potential fallout on Pakistan,” he added.

In a report, Financial Times quoted fund managers as saying the likely exodus of refugees from Afghanistan could strain the finances of the neighbouring countries. There was also concern over the potential for western retaliation against Pakistan for providing a safe haven for the Taliban, it added.

According to the paper, Pakistan’s bonds fell by about 1pc 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 roughly 7.3pc.

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

Published in Dawn, August 17th, 2021