GCC Bonds Monitor

Declining US treasury yields boosted the performance of GCC bonds.

In the first half of this year, USD denominated fixed rate new issues in the GCC totaled circa USD 54 billion, of which USD 8 billion was in sukuk format.
Increasing prospects of oil production cuts boosted the case for higher oil prices which in turn stimulated the bid for GCC bonds. In addition, incremental bid on the back of index inclusion also continued to support GCC bonds. However, the biggest push for the June rally in GCC bonds came from the big slides in US treasury yields on the back of weak economic data and continuing trade tensions. Average option adjusted credit spreads on Bloomberg Barclays GCC bond index narrowed 25bps to 170 bps in June, facilitating monthly total returns to exceed 2.67%.
M&A activity in the region remained high. Emirates NBD received regulatory approvals to consummate its acquisition of Denizbank in Turkey. Also DIB received board approval to acquire Noor Bank. Dubai based port operator, DP World acquired Topaz Energy for USD 1.1 billion while ADNOC sold 40% stake in its pipeline assets to Blackrock and KKR for USD 4 billion.
Credit rating changes were mixed. S&P upgraded Sharjah Islamic Bank (SIB) to A- even though Moody’s revised the outlook on SIB’s A3 rating to negative.