By Staff Reporter
KARACHI: The Bank of America Corp (BofA) upgraded its outlook for Pakistan’s dollar bonds, citing reduced political uncertainty and potential credit rating upgrades.
BofA raised its recommendation to overweight from marketweight, with a fair value range of $70-75 for the bonds maturing in 2036 and beyond, according to a note by strategists led by Vladimir Osakovskiy.
The bank said the political risks related to the elections were easing, as the new government had already secured a deal with the International Monetary Fund (IMF) to address the fiscal and external imbalances.
BofA also initiated a trade to buy Pakistan’s 2026 bonds, with a target price of 83 and a stop loss of 69, expecting them to benefit from the likely repayment of the $1 billion bonds due in April.
The repayment would support the whole curve, but especially the 2025-2026 segment, which could see further bull-steepening, the bank said.
The longer-dated bonds could also gain from the expected progress with the IMF program, which could lead to gradual rating improvements, as suggested by S&P Global Ratings, which affirmed Pakistan’s B- rating with a stable outlook last week.
“We note remaining political tail risks, as the market may closely monitor Cabinet appointments and evaluate key members based on their ability to meet IMF conditions,” the strategist further added.
Last week, Barclays also maintained its overweight rating on Pakistan’s sovereign dollar bonds, saying the new government is unlikely to default on its debt obligations despite political uncertainty and economic challenges.
The British universal bank said Pakistan’s foreign reserves have improved and the repayment risks are low, even as the country faces a daunting task to secure a new loan from the IMF.
Pakistan’s sovereign dollar bonds fell as much as 1.25 cents last week, after a close election that resulted in a hung parliament and raised the prospect of a weak coalition government. However, dollar bonds rose sharply a day after as investors welcomed the formation of a coalition government that could ease political uncertainty.
The prices of the bonds, which had been under pressure due to an inconclusive election held on Feb. 8, increased by 1-6 percent.
The 10-year $1 billion Eurobond, which matures in April 2024, gained 1 percent to 98.40 cents on the dollar. The $500 million bond due in September 2025 rose 3 percent to 85.87 cents. The bond maturing in April 2026 climbed 4 percent to 77.55 cents.
The bonds with longer maturities saw the biggest gains, with the 2031 and 2036 bonds rising 5-6 percent to trade at 61.70 cents and 67.21 cents, respectively.
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