Anita Yadav - Head of Fixed Income Research
Aditya Pugalia - Analyst
Published Date: 13 May 2018
Notwithstanding a subdued inflation print in the US, treasuries closed lower across the board. However, the curve flattened on the long end with yields on the 2y UST and 5y UST rising 4 bps and 5 bps to 2.53% and 2.83% respectively during the week and dropping 2 bps 5d on the 30y UST to 3.10%. The 5s30s spread narrowed to 26bps, the lowest since August 2007 to keep the prospect of an inverted curve in focus.
Yield on the 10y Gilts rose 4 bps to 1.44%. However, that was despite the Bank of England meeting and not because of it. While the BoE maintained its hawkish outlook, it downgraded the 2018 growth and inflation forecasts. However, it should be noted that the central bank’s forecast for 2019-2020 remained largely unchanged to imply that the central bank would look to tighten monetary policy sometime in 2018.
The emerging market space continues to remain under pressure. Yields rose further, albeit at the lowest pace in five weeks. The YTW on the Bloomberg Barclays EM USD Aggregate index rose 3bps to 5.48%. Egypt’s credit rating was upgraded by one notch to B from B- by S&P. The outlook on the rating is stable. The rating agency cited strengthening economic growth and rising external foreign exchange reserves as the reason for the upgrade.
Regional bonds closed higher for the first time in five weeks as rising oil prices and no new supply fuelled credit spread tightening. The YTW on the Bloomberg Barclays GCC Credit and High Yield index dropped -2bps to 4.59% and credit spreads tightened by 5 bps to 182 bps.
Dana Gas said it has reached an agreement with key sukuk holders to end the legal battle. The agreed terms include two options for creditors – 1. The first option allows holders to exit their principal and to tender their claims at 90.5cent per USD 1 of the face value of their holdings, including an early participation fee of 2.5 cents, 2. The second option offers holders 20% of the face value of the existing sukuk. The rest will be rolled over into a new Wakala sukuk with a profit rate of 4%. Creditors will be paid accrued profit from May 2017 to October 2017 at the existing rate of 7% and 9% and accrued profit of 4% from November to securities close. The transaction is expected to be completed by July 2018. Sukukholders representing more than 52% of the aggregate amount of the exchangeable certificates and 30% of the existing ordinary certificates have agreed to the terms. The DANAGAS 9s closed last week at USD 89.46 and DANAGS 7s closed at USD 89.41. The news of an agreement came after the market closed.
S&P affirmed Aldar Properties rating at BBB but revised the outlook to Negative from Stable. The rating agency believes that the recent deal to acquire assets would weaken financial ratios due to higher debt requirements. In another action, S&P downgraded Al Baraka Banking Group to BB from BB+. The outlook is stable. The rating agency said that the downgrade reflected its view that the bank’s capitalization is a perceived weakness due to large operations in Turkey.
The activity in primary market has slowed recently. At the moment, only Commercial Bank of Qatar is conducting roadshows for a benchmark USD issuance.
Source: Emirates NBD Research
Relative Value in Sukuk : May 2018
The US imposed sanctions on Venezuela