Bond, currency markets under severe pressure

KARACHI: Pakistan's bond and currency markets have come under severe pressure amid rising political uncertainty in the country, analysts said.

Economic and political uncertainty have risen considerably since Imran Khan dissolved National Assembly (NA) on April 3, after speaker of the session did not allow ‘no-confidence motion’ against the PM, they added.

Political noise increased further when deputy speaker of Punjab Assembly was not allowed to conduct voting of Punjab chief minister.

The 6M Kibor is at a 2-year high of 13.19 percent as such rates were last seen in March 2020 and the 6M Kibor is also up 200bps since Mar 8, 2022 when the no confidence motion was moved in NA by the opposition parties, Umair Naseer, an analyst at Topline Securities, said.

Similarly, 3-year and 5-year bonds are also at almost 2.5-years high of 12.7 percent and 12.5 percent, respectively. Since March 8, 2022, yields are up around 130bps, he added.

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Just like the bond market, currency market has also come under severe pressure as dollar had touched all time high of Rs189 in the inter-bank market, which is up around 6 percent since the no confidence motion was moved, Umair said.

“Weakness in currency coincide with falling SBP foreign exchange reserves which has dropped to $12 billion ($11 billion as per news reports currently) as of March 25, 2022 from a peak of $20 billion as of August 27, 2021, he said, adding that deferment of IMF program, Chinese debt repayment and rising current account deficit has led to pressure on foreign exchange reserves. As a result, import cover has fallen from 3 months of import in August 2021 to 2 months currently.

Pakistan Eurobond yields have also been rising with yields on bond maturing in 2024 has increased to 17.3 percent versus 5 percent in December 2021 amid rising default risk. Similarly, 2025 bond is also up from 5.72 percent in December 2021 to 15.99 percent.

“We believe clarity on the political situation and relations with IMF will remain the key to Pakistan economic, currency and bond market outlook”, Umair Naseer said, adding that adjustments in policy rates and petrol price hike (reduction in subsidies) will also remain key going ahead.

Copyright Business Recorder, 2022