High yielding Pakistan bonds drawing international investors

• 'A double-digit yield on a cheap currency is a good value trade in itself,' says Charles Robertson from Renaissance Capital.
• Pakistan's central bank has more than doubled its policy rate to 13.25pc i.e. the highest in Asia.

Pakistan bond market has become a profitable option for foreign investors, with sovereign bonds witnessing an unprecedented inflow of foreign money and global investors having purchased 1-year bonds worth $642 million last month alone.

“A double-digit yield on a cheap currency is a good value trade in itself,” Charles Robertson from Renaissance Capital told Deutsche Welle. “I would recommend investors keep buying Pakistan while it offers double-digit interest rates,” he said.

Pakistani bonds offer high returns, Pakistan's central bank has more than doubled its policy rate to 13.25pc – the highest in Asia – to help stabilize the economy. The foreign inflow in bonds is expected to reach a record $3 billion by the end of the fiscal year.

Robertson added that even central bank rate cuts of a few percent would still make Pakistan interesting. “The current policy choices of Pakistan offer the country the best chance of getting onto a sustainable growth path. Borrowing costs are lower thanks to foreign investors buying government debt,” he said.

Meanwhile, the data provided by the State Bank of Pakistan (SBP) showed that of 1-year papers bought in November, 55 percent were from the UK and 44 percent from the US.

Moody's Investors Service on Monday affirmed Government of Pakistan's local and foreign currency long-term issuer and senior unsecured debt ratings at B3 and changed the outlook to stable from negative.

Giving the rationale, Moody's said, “The change in outlook to stable is driven by Moody's expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility.”

The rating agency said that such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild.