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Anita Yadav - Head of Fixed Income Research
Published Date: 06 May 2019
Government bonds traded in a narrow range albeit with slight hawkish bias on the back of stronger than expected jobs data and the Fed Chairman Powell’s comment that the muted inflation was due to transitory factors. Yields on 2yr, 5yr, 10yr and 30yrs USTs closed the week up at 2.33% (+4bpsp, w/w), 2.32% (+1bp), 2.53% (unchanged) and 2.92% (-4bps, w/w) respectively. Across the Atlantic, sovereign bonds were mixed with 10yr Gilts adding to their previous losses as the yield rose 6bps to 1.22% while the 10yr Bund yield was slightly lower at 0.023%. Credit spreads inched a bp or two down on US IG as well as the Euro Mian to 58bps each respectively.
Regionally, yield on Barclays GCC bond index dropped 3bps to 3.96%, directly in sync with the 4bps drop in credit spreads to 153bps on the back of rising oil prices. While investors are unsure how OPEC and its allies will respond on production volumes as U.S. waivers on importing Iranian oil expired on May 2, the removal of Iran oil from the market boosted the case for higher oil prices which in turn boosted the sentiment on GCC bonds.
During the week, Abu Dhabi Commercial Bank began trading as a merged entity after its combination with Union National Bank and Al Hilal Bank. The credit spread on ALHILA 23s and ADCBUH 23s tightened 3bps each to 124bps and 105bps respectively. The continuing difference in trading yields despite common ownership is mainly attributed to the merged structure whereby Al Hilal will continue to operate as a separate stand-alone entity.
Fitch affirmed Saudi Arabia’s rating at A+/stable citing the sovereign’s strong balance sheet and improving budget dynamics. Nevertheless, 5yr CDS spreads on the sovereign increased by 2bps to 78bps during the week.
Moody’s affirmed Kuwait’s rating at Aa2/stable. The affirmation is underpinned by Moody's view that Kuwait's exceptionally large wealth, with sovereign wealth fund assets estimated at around 370% of GDP and vast hydrocarbon reserves, will continue to support the sovereign's fiscal strength and creditworthiness. The yield on KUWAIB 27s closed 5bps lower at 3.15% even though 5yr CDS spreads increased a bp to 61bps.
S&P revised the outlook on Oman’s BB rating to negative citing risks relating to increasing sovereign debt and sizeable fiscal deficits which are likely to continue until 2022. The yield on Oman bonds due in 2028 at 6.27% remains higher than Bahrain’s similar-maturity debt yield at 5.86%. Bahrain rallied last year after the nation won a $10 billion bailout package and got included in JPMorgan’s emerging-market bond indices. S&P rates Bahrain two levels lower than Oman at B+.
Source: Bloomberg, Emirates NBD Research
GCC Bond Monitor May 2019
Emirates NBD iBoxx Sukuk index update
GCC Credit Weekly
GCC bonds monitor April 2019