Pakistan’s dollar-denominated bonds fell more than 13 cents on Monday, marking their steepest single-day decline since the onset of Russia’s full-scale invasion of Ukraine in early 2022. This significant drop was driven by escalating trade tensions following renewed tariff threats from US President Donald Trump, according to Reuters.

Investors retreated amid increasing macroeconomic uncertainty, with longer-dated bonds from Pakistan and Sri Lanka losing over 6 cents by mid-afternoon trading. The pressure on hard-currency bonds issued by smaller, riskier economies intensified, leading to surging yields that reached double digits, raising concerns about debt sustainability.

Frontier markets heavily reliant on commodity exports were also adversely affected. Bonds from Angola, Gabon, and Zambia each fell around 4 cents as oil prices declined and copper markets weakened.

The combination of US trade policy shocks and falling commodity prices has created a dual challenge for vulnerable economies. The shift towards safer assets has resulted in widening spreads and reduced liquidity for lower-rated sovereign issuers.

In sub-Saharan Africa, international bond yields for nearly all issuers, except for higher-rated countries like Namibia and the Seychelles, have surpassed 10 percent, a threshold often considered unsustainable for borrowing.

Pakistan, already grappling with challenging funding conditions, may face further pressure on its external balances, including a reported $3.3 billion trade surplus with the US.