Pakistani dollar bonds saw remarkable 30% surge this year, marking the highest increase in Asia.

This surge is attributed to the market’s positive response to the International Monetary Fund’s (IMF) initial approval of a new three-year bailout last month, according to a report by Bloomberg.

Fund manager Mackay Shields has forecasted that these bonds could rise to as high as 85-90 cents on the dollar, contingent on a favorable market environment.

However, for further gains, Pakistan must adhere to stringent reform measures and secure long-term financing assurances from bilateral creditors before the IMF board’s final approval of a new $7 billion loan package, expected by the end of August. According to UBS Asset Management’s head of fixed income for emerging markets and Asia Pacific, commitment to the IMF program is crucial for continued capital gains for Pakistan.

The anticipated new loan package is expected to provide the struggling coalition government with the necessary leeway to stabilize the economy and manage its growing debts. Eric Fang, a fund manager at Eastspring Investments, predicted that bonds will trade within a range as reforms proceed, with coupon income potentially offering double-digit returns over the medium term.

As of Tuesday, Pakistan’s 2031 bond remained steady at around 77 cents on the dollar, while the 2051 bonds traded flat at 72 cents, according to Bloomberg data.

Investors are also closely monitoring Pakistan’s potential return to capital markets following Fitch Ratings’ upgrade to CCC+ from CCC. S&P Global Ratings has affirmed its current rating at CCC+.

Central bank Governor Jameel Ahmad indicated that Pakistan might consider a Eurobond sale once the overall credit rating improves. Philip

Fielding, co-head of emerging markets at Mackay Shields in London, noted that fresh foreign-currency issuance could help narrow Pakistan’s debt spreads.