By Staff Reporter
KARACHI: Pakistan’s US dollar-denominated sovereign bonds, already the standout performers among high-yield emerging-market credits this year, are expected to push higher as investors bet on credit-rating upgrades and a successful return to international capital markets in 2026, fund managers said.
The bonds have returned 24.5% year-to-date, easily outpacing similarly rated peers such as Egypt and Argentina, according to Bloomberg data. Investors told Bloomberg the gains are likely to continue provided Islamabad maintains strict adherence to its International Monetary Fund programme and executes its planned return to the Eurobond market.
Khurram Schehzad, economic adviser to Finance Minister Muhammad Aurangzeb, told Bloomberg the government intends to raise fresh dollar funding through international bonds next year, Pakistan’s first such issuance since 2021.
In September, Pakistan repaid a $500 million Eurobond that matured on Sept. 30, removing an immediate refinancing overhang. Aurangzeb said last month the country aims to tap the market again in 2026 via a new issuance under its Global Medium-Term Note programme.
Danske Bank Asset Management, which first bought Pakistan bonds during the height of the 2022 liquidity crisis, has added to positions several times this year. “We are optimistic that Pakistan will stay on the reform course, rebuilding buffers like higher dollar reserves and also getting market access and taking advantage of that,” Søren Mørch, Danske’s head of emerging-market debt, told Bloomberg.
Shamaila Khan, head of emerging-market and Asia-Pacific fixed income at UBS Asset Management, said sustained IMF compliance would underpin further outperformance. “The outperformance will sustain as long as they’re sticking to the IMF policies, which we believe they have a strong commitment to do so,” Khan said. She added that regaining market access would largely eliminate refinancing concerns for the next two to three years.
Salman Niaz, head of global fixed income for Asia-Pacific ex-Japan at Goldman Sachs Asset Management, identified two near-term catalysts. “In the next six to 12 months, we see rating upgrades as the first catalyst and market access as the next catalyst” for further price appreciation, Niaz said. Persistent geopolitical tensions with India and Afghanistan, together with any sharp rise in global energy prices, remain the main downside risks, Bloomberg noted. Investors, however, said the reform momentum and improving external balances currently outweigh those concerns.
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