What if Pakistan defaults on its sovereign debt?
A missed Eurobond payment after failed Chinese/Gulf deposit rolls triggers frontier-debt contagion — but the supplied cascade (VIX +5.7%, Nasdaq -2.5%) is wildly oversized for a sub-$350bn frontier economy. Realistically this hits the frontier-bond complex and EM credit risk premia, not US megacap. Rhymes with Sri Lanka's 2022 default and Pakistan's own brinkmanship — contagion stayed within frontier dollar debt. Transmission runs to other stressed frontiers (Egypt, Kenya, Nigeria), not developed markets. Forward: China's role as bilateral creditor makes the restructuring path geopolitical, not purely financial.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 6–18 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. Pakistan misses a Eurobond payment after failing to roll Chinese and Gulf deposits, triggering frontier-debt contagion. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Geopolitical risk ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.