GCC Bond Market Update July 2017

GCC bonds have had a constructive first half with total return on Bloomberg Barclays GCC index exceeding 3.35% despite a 15% fall in oil prices since the beginning of this year. Though capital gains have been limited, contribution from coupon collection has helped in keeping the total return healthy. There has been no material difference between the performance of conventional bonds and sukuk securities.

Yields on 2yr UST had increased circa 20bps to 1.38% in the half year ending June 30^th which negatively affected the shorter dated bonds, however, it was more than compensated by lower yields on medium to longer dated part of the curve with yields on 5yr, 10yr and 30yr UST ending the first half at 1.89% (-5bps), 2.31% (-13bps) and 2.84% (-22bps) respectively. Given large issuance of  longer dated bonds by sovereigns in the region recently, average duration of GCC bonds portfolio has increased  from circa 5yrs few years ago to close to 8 years now. Higher duration of the portfolio has proven beneficial in the environment of yield curve flattening.

Bloomberg Barclays GCC Total Return Index

Source: Emirates NBD Research, Bloomberg

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