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GCC bond market to continue gaining momentum despite lower performance

October 2016

October 9, 2016 | 13:20 | Dubai

The Gulf Cooperation Council (GCC) region’s bond market, which saw record sales in the first half of 2016, is expected to continue experiencing an increase in the volume of issuances; as per an analyst note from Indosuez Wealth Management. The note observed that KSA and Kuwait inaugural bonds issuance are expected to generate significant interest from a broad range of international investors, similar to what was experienced with recently issued bonds from Abu Dhabi and Qatar.

Indosuez Wealth Management added that in the current environment of lower interest rates, the hunt for higher yields and longer bond duration is driving the demand for USD bonds higher. This situation is making bonds in ‘High Growth Markets’ a top performing asset class, with a growth of 11.5% on a year-to-date basis. With the ‘Emerging Markets Bonds Compendium’ at a 12-month high, this rally is being further lifted in recent times by the positive sentiment from US economic data and the recovery of oil prices. Christiane Nasr, Director & Senior Investment Advisor, Indosuez Wealth Management, commented: “Despite the strong year-to-date performance, more spread compression in ‘High Growth Markets’ could be still achievable by the end of 2016 without ruling out a degree of volatility along the way. In this overall context, the GCC region will increasingly gain more momentum as an attractive and more secure bond market for international institutional investors.

Attraction towards GCC bonds will become even more compelling due to general spread compression and market conditions elsewhere, with a large proportion of Eurozone bonds currently trading at negative rates, Asian bonds being stable but with tight spreads and Latin America continuing to be highly volatile despite yielding high returns.”

Technical aspects should remain supportive with the upcoming GCC bond supply expected to be well absorbed by a broad range of international investors, with notable large-scale sovereign debt issuance by Saudi Arabia and Kuwait, along with corporate/quasi-sovereign/GRE debt issuance by Oman Oil, Saudi Electricity, Investment Corporation of Dubai and Ooredoo. This is expected to be the case despite the GCC’s corporate bond market tightening by only 4bps YTD, making it the lowest amongst its peers in High Growth Markets.; with Latin America, Emerging Europe and the Asian bond markets tightening by 163bps, 100bps and 51bps respectively.

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