Pakistan’s Default Risk Falls Sharply to 71% As Nerves Briefly Subside

After tensions seemed to have lessened following Finance Minister Ishaq Dar’s repeated assertion that the real value of the dollar is Rs. 190, Pakistan’s prospects of defaulting on its debt significantly decreased over the past 24 hours.

Arif Habib Limited (AHL) figures show that Pakistan’s benchmark 5-year Credit Default Swap (CDS) decreased dramatically on November 22 by an enormous 5,224 basis points to 71.64 percent. The instrument has lost more than 52 percentage points in a single day, which indicates that investors are once more somewhat willing to accept Pakistan’s default risk at a price level of over 70%, which is still a staggering amount.
A 71 percent CDS for Pakistan in today’s parlance denotes a willingness to pay 71 cents to which is still a maddening yield to maturity for a country that hasn’t defaulted yet.

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