Pakistan's default risk rises 100 basis points

BENAZIR BHUTTO ASSASSINATION - THE DAY AFTER

The perceived risk of Pakistan defaulting on its debt rose to the highest in a month as the assassination of former Prime Minister Benazir Bhutto threatened efforts to restore democracy.

The cost to protect the country's debt from default jumped 100 basis points, or 1 percentage point, to 530 basis points at 4.24 pm in Hong Kong, according to ABN Amro Holding NV prices.

Credit-default swaps on Pakistan's $22.4 billion of loans and bonds outstanding rose from 430 basis points before the assassination, according to ABN Amro prices.

It now costs $530,000 annually to protect $10 million of the nation's debt from default for five years, the highest of any government, according to credit-default swaps tracked by Bloomberg.

Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bond-holders by paying the buyer face value in exchange for the underlying securities should the borrower default.

A decrease in the price indicates improving investor perceptions of credit quality and an increase suggests deterioration.

Meanwhile, Standard & Poor's Ratings Services said sovereign credit ratings on Pakistan (foreign currency B+/Negative/B; local currency BB/Negative/B) could be lowered, if the assassination of Benazir Bhutto leads to further violence and political turmoil in the country.