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Anita Yadav - Head of Fixed Income Research
Published Date: 08 April 2019
Stronger than expected employment data out of the US boosted risk appetite last week, thereby causing the UST yield curve to shift upwards. Yield on 2yr, 5yr, 10yr and 30yr USTs closed the week higher at 2.34% (+8bps), 2.31% (+7bps), 2.50% (+9bp) and 2.90% (+9bps) 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 0.004% (+7bps w/w) and 1.11% (+11bps) respectively.
Notwithstanding the rising benchmark yields, GCC bonds had a constructive week with average yield on Barclays GCC bond index tightening 4bps to 4.03%, fuelled by 13 bps tightening in credit spreads to 163 bps on the back of stability in oil prices.
Oil prices have had constructive few weeks, rising 3% last week with Brent crude crossing the USD 70 / b mark. 2H 2019 points towards a tight oil market with possible elimination of waivers to US sanction on Iran output. That said, now that President Trump feels secure from impeachment, his politically popular intervention in the oil market is likely to be even stronger and more frequent with a call on Saudi output to increase.
Boosted by ramped up oil production in the second half of last year, Saudi Arabia reported 4.5% q/q GDP growth in the 4th quarter of 2018. S&P affirmed the sovereign’s rating at A-/stable which is two notches lower than Moody’s and Fitch at A1 and A+/ stable respectively. Credit protection on Saudi became cheaper with 5yr CDS spread dropping 6bps to 80bps last week.
Most key developments of last week were in the banking sector. Media reports surfaced about First Abu Dhabi Bank considering acquiring or merging with Abu Dhabi Islamic Bank. The possibility can not be ignored given the common shareholder, and if manifested, the deal could see positive benefits for ADIB credit curve given the higher credit rating on FAB (Aa3/stable, AA-/stable) versus those on ADIB (A2/stable, A+/stable). The merger would create a lender with $236.7 billion in assets, putting it just ahead of Qatar National Bank with $235.9 billion and make it the largest bank in the Middle-East. Yield (to next call) on ADIB perp contracted 19bps to 5.41% in response.
Also Emirates NBD confirmed plans to acquire Turkey’s Denizbank for 15.48 billion lira ($2.75 billion) from Sberbank, subject to regulatory approvals. Yield on EBIUH 6.375% perps widened 9bps to 4.80% last week.
Source: Bloomberg,Emirates NBD Research
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