The yield on 10-year US government debt — the world's reference 'risk-free' rate, against which the return investors demand for holding emerging-market assets like Pakistani bonds is ultimately measured.
Source: FRED (Federal Reserve Economic Data), DGS10, market yield on 10-year US Treasury securities, monthly.
The 10-year US Treasury yield is the interest rate the US government pays to borrow money for a decade, and because US government debt is considered the closest thing to a 'risk-free' asset globally, this yield serves as the baseline against which virtually every other long-term interest rate in the world is priced.
When the 10-year yield rises, global investors have a more attractive, safer alternative to holding riskier assets — including emerging-market government bonds like Pakistan's own T-Bills and PIBs — which raises the yield emerging-market borrowers must offer to remain competitive for the same capital.
The yield moves primarily on expectations for US Federal Reserve policy, US inflation, and US growth — largely independent of anything happening in Pakistan specifically, making it a genuinely external factor shaping Pakistan's own borrowing environment.
A higher US 10-year yield raises the cost of external borrowing for Pakistan, whether through Eurobond issuance or general investor appetite for emerging-market debt — a factor entirely outside Pakistan's own policy control but directly relevant to its financing costs.
Rising US yields can also trigger capital outflows from emerging markets generally, as investors shift money toward the now more attractive (and safer) US Treasury market — a headwind for the Rupee and portfolio flows into Pakistan's own bond and equity markets during periods of sharp US yield increases.