Paradigms
A Research Journal of Commerce, Economics, and Social Sciences
Online ISSN: 2410-0854
Print ISSN: 1996-2800
 
     
 

Paradigms Journal

Impact of sovereign credit rating and country risk on bond market of Pakistan
Author(s) :
Chaudhry Abdullah Imran Sahi (Lecturer, Lahore School of Accountancy and Finance, the University of Lahore, Lahore, Pakistan)
Abid Rasheed (Lecturer, School of Accounting and Finance, University of Central Punjab, Lahore, Pakistan)
Abstract
This research investigates the impact of sovereign credit rating (SCR) and composite country risk on yield of Pakistan government bonds from period 1995 to 2015. Moderating variables added including Inflation rate, Current Account balance, GDP rate and Spot oil prices. Co-relation and Regression method used for analysis. From analysis of the first research question it's clear that bond yield has negative correlation with sovereign credit rating, inflation rate and current account balances. Which implies that when the value of all three variables including declined consequently value of bond yield jumped up. While Bond yield has positive correlation country risk. Which implies that if country is less risky, bond yield would be reduced. It must be noted that results are in line with many of researchers. While individual coefficients are concerned inflation rate has significant impact on bond yield of Pakistan. Country risk has also significant impact on bond yield of Pakistan. These results are in line with "Country Risk Report of Moody’s" issued on 15 August 2106. There should be investigation about composite country risk (Pakistan placed at higher country risk ranking). What steps should be taken to improve the Sovereign credit rating of Pakistan? This topic would be interest of wider audience with respect to long term investments in bonds of Government of Pakistan. Because of higher risk of fraud in real estate market including scandals of DHA and poor industrial production, it’s better for investor to invest in government bonds with minimum level of risk as compare to corporate bonds.
Keywords: Sovereign credit rating, Country risk, Bond yield
 
 

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