Pakistan-India escalation pushes Pakistan’s credit default swap up

Pakistan’s five-year credit default swap, a key gauge of the country’s default risk, has surged in recent weeks amid heightened tensions with neighboring India following cross-border escalation.

The CDS jumped more than 150 basis points since April 22, reaching a peak of 926 basis points on May 5, up from 773 basis points on the day of the Pahalgam terror attack. As of May 8, it had eased to 867 basis points — a 59-basis-point drop from its recent high but still reflecting elevated sovereign risk.

The current standoff has drawn comparisons to the 2019 Pulwama-Balakot episode, though analysts say the latest Indian strikes have reached deeper into Pakistani territory, including targets in Punjab.

Yields Climb, Confidence Falls: Pakistan Bonds Hit by Escalating Tensions

Sovereign bond prices have also fallen in recent days, with yields rising as investor appetite wanes. Prices across all tenors are down between 1.4% and 5.7% since April 22.