BofA upgrades Pakistan bonds on political stability

February 27, 2024 (MLN): Bank of America Corp (BofA) raised its recommendation for Pakistan dollar bonds to overweight from marketweight, citing a decrease in political uncertainty following the elections and potential rating improvements, as Bloomberg reported.

"We are upgrading Pakistan to overweight from marketweight with a fair value range of $70-75 at the longer end of the curve," strategists led by Vladimir Osakovskiy wrote in a note.

Elections-related political uncertainty is diminishing, as the remaining policy risks are largely the same as last year and have already been addressed once through the breakthrough with the IMF, according to BofA’s strategist.

"We are initiating a trade to buy Pakistan notes due in 2026 with a target of 83 and a stop loss of 69," Vladimir said.

The likely repayment of the $1bn '24s maturing in April will likely provide support to the entire curve, but mainly draw attention to the 25-26 period, likely prompting further bull-steepening.

The longer end may benefit from anticipated progress with the new IMF program, as the market may begin to factor in gradual rating improvements, as hinted at by S&P.

"We note remaining political tail risks, as the market may closely monitor Cabinet appointments and evaluate key members based on their ability to meet IMF conditions," the strategist further added.

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