In early European trading, trading in Middle East bonds has widened overall, with desks flooded with sell requests.
Last weekend’s attacks in the region have cast a somber mood on the market, with bankers and investors keeping an eye on the headlines and hoping for a speedy end to the conflict.
As far as the market is concerned, one banking source said, “In the past, people looked at (the Middle East) as a haven.” Instead, there will now be a “total reassessment” of Gulf credit.
For example, Abu Dhabi ((Aa2/AA/AA)) raised $3 billion last week through $1.25 billion of five-year bonds at 20 basis points above the national debt and $1.75 billion of 10-year bonds at plus 25 basis points, while the long-term tranche was expanded by 30 basis points. “Given the situation in Abu Dhabi, this is a significant amount,” he said. banker.
Another bank official said investment-grade sovereigns in the Gulf typically range in a wide range of 10 basis points to 15 basis points, which equates to 1 to 1.25 percentage points lower in spot prices.
He said bond prices for low-investment-grade, high-yield sovereigns fell by an average of 1.75 basis points, or 2 percentage points. Egypt’s spread, for example, has widened by about 25 basis points, highlighting how the decline is spreading beyond the Gulf and into a broader set of emerging markets. Bank officials said sub-Saharan Africa and Türkiye were also affected markets.
“We’re flooded with offers to sell. It’s a one-way street at the moment,” said the second banker.
However, some Middle Eastern companies have outperformed, with Aramco, for example, gaining just 5 basis points.
From a primary market perspective, the Middle East has become perhaps the most important emerging region, with issuance already just shy of USD 58.5 billion this year, according to LSEG data.
However, bankers said the short-term pipeline was not particularly large due to Ramadan and that even if the dispute lasted several weeks, it would not have a major impact.
“I don’t think a month is relevant,” said the first banker. “No customers have a problem. If they don’t fund us in the next month, we have a problem. And there’s already a lot of issuance going on. Issuers can take a break for a period of time.”
One credit-positive development for many Gulf countries is the biggest jump in oil prices in four years. Brent soared as much as 13% as traders reacted to the virtual suspension of tanker traffic through the Strait of Hormuz, before settling around 6% higher at around $77 a barrel, MUFG said in a report this morning.
“OPEC+ has agreed to a small production increase, but there are persistent concerns that additional supplies will not be possible if Hormuz’s disruption continues. Oil prices could exceed $100 per barrel if oil flows do not recover quickly, highlighting the market’s vulnerability to prolonged geopolitical instability despite prior expectations of a global surplus,” said Sujin Kim, a research analyst at the Japanese bank.
Source: IFR
