Pakistan Bonds Better Choice Than Egypt’s, VTB Capital Says

Pakistani debt is a safer bet than that of similarly rated Egypt as the South Asian nation is enjoying greater political stability, VTB Capital said.

The Asian country is benefiting from a recently finalized International Monetary Fund program, the political transition to its second elected government and resumption of U.S. support. Egypt, meanwhile, has put IMF talks on hold and is trying former President Mohamed Morsi while waiting to hold parliamentary and presidential elections next year.

Pakistani bonds’ “downside is more protected than in Egypt,” VTB’s Raza Agha, chief economist for Middle East & Africa, said in an e-mailed note. In Egypt, “there are increasing indications that Islamist parties will remain disenfranchised in the new permanent set-up post elections,” that will hurt investor sentiment and economic activity, London-based Agha said.

The yield on Egypt’s 5.75 percent notes due April 2020 fell two basis points today to 7.3 percent, paring the surge this year to 127 basis points. By contrast, the yield on Pakistan’s 6.875 percent Eurobonds due June 2017 has tumbled 165 basis points to 7.72 percent. Both countries are rated Caa1, the fifth-lowest ranking, at Moody’s Investors Service.

The Egyptian pound lost value in black market trading, while the official interbank rate was little changed at 6.8889 pounds a dollar. The U.S. currency traded at 7.135 pounds, or a 3.6 percent premium to the official rate compared with 3.4 percent last week, according to three money changers surveyed by Bloomberg. They asked not to be identified because trading currency outside official rates is illegal.

Source: Bloomberg