Islamabad, April 08: Pakistan’s sovereign bonds saw a steep drop of over 13 cents in value across global frontier markets on Monday, marking the largest single-day decline since the financial turmoil that followed Russia’s full-scale invasion of Ukraine in early 2022.
The sharp selloff came as US President Donald Trump maintained his hardline stance on broad-based tariffs, sparking widespread concern among investors and triggering a broader risk-off sentiment across emerging and frontier markets.
Hard-currency bonds issued by smaller, riskier economies were hit particularly hard.
Yields on many of these securities soared into double digits, reflecting rising fears over debt sustainability and access to international financing.
“The heightened macroeconomic volatility severely impacted emerging market credit this week,” said James Wilson of ING.
Market Risk Averse
He also noted that the overall tone in markets has become increasingly risk-averse, leading to high-yield debt underperformance, wider credit spreads, and a growing liquidity crunch.
Among the worst affected were longer-tenor bonds issued by countries like Pakistan and Sri Lanka — both major textile exporters that are now exposed to the full brunt of new US tariffs.
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According to Tradeweb, these bonds had declined by more than 6 cents by 1500 GMT.
Meanwhile, international bonds issued by commodity-exporting nations also suffered. Sovereign debt from Angola and Gabon, both major oil producers, as well as Zambia, a key copper exporter, posted losses of around 4 cents.
“The steep price corrections we’re seeing reflect a combination of two major shocks: President Trump’s reciprocal tariffs on multiple trading partners and the downward pressure on oil prices due to recent OPEC decisions,” explained Stuart Culverhouse of Tellimer in a client note.
The initial announcement of the tariffs last Wednesday caused a divergence in emerging market bond performance, with high-yield (HY) sovereign debt — typically issued by nations with lower credit ratings — suffering the deepest losses.
In contrast, debt from investment-grade countries showed relative resilience, according to a Citi research note.
As a result, benchmark yields on most Sub-Saharan African sovereign bonds — with the exception of better-rated nations like Namibia and Seychelles — have now climbed above 10%, a level widely considered as unsustainable for long-term borrowing, added Culverhouse.
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This latest turmoil in frontier debt markets could intensify funding challenges for several vulnerable economies, particularly those already under fiscal strain or awaiting external support.
Countries such as Angola, Gabon, Senegal, and Pakistan, facing both external trade shocks and elevated debt costs, may now find it increasingly difficult to access capital markets for refinancing or development financing.
