GCC yields move lower Qatar settles at 2.14pc

(MENAFN- The Peninsula)

By Satish Kanady

DOHA: Rattled by global markets the GCC yields including Qatar’s moved mostly lower in third quarter of 2015. Rates on 4-5 year paper were down between 12 and 28 bps (basis points) for Abu Dhabi Dubai and Qatar to settle at 1.60 percent 3.11 percent 2.14 percent respectively during the third quarter.

GCC bond markets appeared to be expecting a US rate hike for most of Q3 before easing slightly after the Fed chose to wait last September. Expectations of a rate hike by the Fed saw GCC yields rise in anticipation early Q3. However the lackluster global environment saw the probability of a rate increase in September diminish. When the decision to delay a Fed move came GCC yields moved down further NBK’s update on GCC debt market noted yesterday.

Meanwhile Reuters yesterday reported Qatar’s central bank halved the size of a planned Treasury bill sale and yields rose sharply in a fresh sign of tightening liquidity in Gulf banking systems due to low oil prices.

Three-month bills were sold at a yield of 1.27 percent at the latest auction up from 0.99 percent at the central bank’s last sale a month ago.

The NBK report noted yields on some GCC bonds rose as oil prices declined to new lows in Q3 15 and concerns over fiscal sustainability reemerged. Bahrain saw its yield increase by 37bps on the back of fiscal and political concerns.

GCC yields are still expected to rise with a federal funds rate hike if and when it happens. The prospect of a US rate hike before year-end seems increasingly unlikely as global developments are being given more weight in the Fed’s decision making.

According to NBK analysts the stock of outstanding conventional GCC bonds was boosted by sovereign issuance in Q3 15 driven by Saudi Arabia while bank and corporate activity was virtually absent.

Outstanding conventional bonds were up 9.6 percent year-on-year at the end of the third quarter following almost two years of slower growth.

GCC sovereigns have turned to debt markets to help finance budget deficits Saudi Arabia led the issuance offering its first bonds since 2007.

Concerned with the rapid drawdown of reserves Saudi Arabia opted to access its domestic debt market to help sustain expenditure plans.

So far Saudi Arabia has issued $20bn in domestic debt and aims to issue a total of $36bn in 2015.

Bahrain and Oman returned to debt financing as well each issuing government development bonds to the tune of $925m and $780m respectively. At their current low levels of debt GCC countries have plenty of room for credit growth strongly backed by their sovereign funds positive economic outlooks and stable FX regimes.

Rising sovereign issuance risks crowding out private sector debt. Banks across the GCC have been keen buyers of recent sovereign issues. As a result this has absorbed some of the excess liquidity on their balance sheets pushing up interbank rates.

Liquidity in the system has already come under pressure as government revenues from oil receipts declined. The perception that risks in the region are on the rise could also see investors ask for higher returns.

A recent primary offering by an Emirati corporate and another by an Emirati bank were priced out as a result.

GCC issuance activity is expected to pick up as regional financing needs remain large and issuers maintain robust ratings.

Sovereigns will turn to debt markets in a bid to protect their reserves while banks will continue to issue debt to meet their needs from adherence to capital regulations and to financing future credit growth. Meanwhile corporate will continue to look to debt markets to diversify their funding and finance future growth.

The Peninsula