Pakistan Global Bonds Drop a 4th Day After PM’s Arrest Ordered

Pakistan’s global bonds fell for a fourth day after the Supreme Court ordered the arrest of Prime Minister Raja Pervez Ashraf over corruption allegations, while protesters in Islamabad called for the administration to quit.

The twin jolt precedes an election due by mid-2013 that would herald the first time a civilian government completed its five-year term and transferred power through the ballot box. Tahir-ul-Qadri, an Islamic cleric, rallied thousands of people in the capital yesterday, vowing to stay until the government resigned and corrupt politicians are removed from parliament.

“The political uncertainty will hurt investor appetite for Pakistan assets,” said Rees Kam, a strategist at SJS Markets Ltd., a Hong Kong-based financial services company that specializes in fixed income. However, the weakness will be short-lived as global risk has improved, he said. “A lot of emerging-market bond funds need to seek yields and Pakistan’s bonds will be under their radar.”

The yield on the 7.875 percent dollar-denominated notes due March 2036 rose five basis points, or 0.05 percentage point, to this month’s high of 10.91 percent as of 11:21 a.m. in Singapore, according to data compiled by Bloomberg. The rate on the 6.875 percent securities maturing in 2017 climbed four basis points to 9.40 percent. Average borrowing costs on Pakistan’s global debt are 10.8 percent, the highest among 11 Asian indexes compiled by HSBC Holdings Plc.

IMF Obligations

The rupee shrugged off the developments, gaining 0.2 percent to 97.50 per dollar in offshore trading after reaching the year’s low of 97.75, data compiled by Bloomberg show. It dropped to a record 98.28 on Dec. 17 and lost 7.5 percent in the past 12 months. The benchmark Karachi Stock Exchange 100 Index fell 3.2 percent yesterday, the biggest drop since August 2011.

Pakistan is scheduled to repay about $7.5 billion to the Washington-based International Monetary Fund by 2015, with $1.2 billion due in June. A partially disbursed $11.3 billion loan program expired in September 2011.

The $210 billion economy will probably expand 3.25 percent in the fiscal year through June, the IMF forecast on Nov. 29, less than the 4.3 percent predicted by the government.

Fighting with militants along the nation’s northwest border with Afghanistan is sapping the budget and undermining confidence among businesses that are already struggling with power outages that have shut factories, left thousands of people jobless and prompted street protests.

Prime Minister Ashraf took power last year after his predecessor was removed by top judges for refusing to order the reopening of graft charges against the president. That confrontation with the judiciary has distracted the elected government from quelling an insurgency with the Taliban.

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