KARACHI: According to statistics supplied by a brokerage business, Pakistan’s benchmark five-year CDS fell a staggering 5,224 basis points to 71.64% on November 22. Arif Habib Limited computed these numbers (AHL).
Over the course of the weekend, the cost of covering exposure to Pakistan’s five-year sovereign debt increased by 1,224 basis points, reaching its highest-ever level of 92.53%. Analysts cautioned the country’s sovereign dollar bonds would remain vulnerable until the political impasse between the government and the Imran Khan-led PTI is resolved, saying the rate at these levels signals a certain default.
The situation is difficult, but not as serious as the present CDS rate indicates, according to an analyst. There was very little room for error. The likelihood that the nation will fail to meet its obligations, according to Khurram Schehzad, CEO of the financial consultancy business Alpha Beta Core, is not excessively high to cause alarm.
According to the probability of default, Pakistan’s credit default risk is only 10%, according to Schehzad’s tweet. He claimed that it stood in complete contrast to the overhyped, incorrectly explained, and highly liquid CDS and associated price distortions.
“CDS is insurance, and there is a big difference between buying insurance on an asset to cover repayments, which depends on investors, and probability of default,” stressed Schehzad.