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Anita Yadav - Head of Fixed Income Research
Published Date: 04 March 2019
Stronger than expected annualised GDP growth of 2.6% in 4Q last year in the US and positive momentum in the US-China trade talks led the UST yield curve to steepen last week. Yield on 2yr, 5yr, 10yr and 30yr USTs closed the week higher at 2.55% (+5bps), 2.56% (+8bps), 2.75% (+9bp) and 3.12% (+10bps) respectively. Across the pond, despite the weakening growth outlook, yield on Eurozone sovereign bonds also closed higher with 10yr Bund and Gilt yields closing the week up at 0.18% (+7bps w/w) and 1.29% (+12bps) respectively.
Notwithstanding the rising benchmark yields, GCC bonds had a constructive week with average yield on Barclays GCC bond index tightening 3bps to 4.27%, fuelled by circa 10bps tightening in credit spreads to 165bps on the back of stability in oil prices.
Several positive news articles in local media about keen investors’ interest in off-plan properties boosted the sentiment on real estate names with DAMAC 23s, REITDU 22s and MERAAS 22s recording solid gains during the week. In contrast, shorter dated bonds such as ADGB 19s and QATAR 19s had price declines mainly due to pull-to-par effect.
Bahrain seem to be making good progress on containing government expenditure. The sovereign trimmed its budget deficit by 35% last year and is targeting budget deficit of only BHD 708 million this year and BHD 613 million ($1.63 billion) in 2020. It aims to save BHD 800 million ($2.1 billion) annually via a voluntary retirement scheme for state employees and other measures to cut government spending. State revenue is likely to get some boost from introduction of VAT from January 1st this year. Bahrain’s need to access international capital markets has reduced substantially as it now has access to the $10 billion aid package provided by its neighbors last year which was designed to cover half the government’s financing needs, including debt repayments until 2022. Bahrain sovereign bonds were boosted higher last week with BHRAIN 47s gaining nearly three points to close at $104.35 and yield tightening by circa 24bps to 7.14%.
Elsewhere, Bahrain Telecom reported 7% increase in FY revenue to BHD 406 million and profit to BHD 50.1 million vs BHD 3.49 million last year on the back of strong performance in most of its divisions. BATELC 20s closed the week at Z-spread of 199bps – circa 4bps tighter on the week.
Source: Bloomberg, Emirates NBD Research
Economic Calendar for the week
GCC Credit Weekly
GCC Bond Monitor May 2019