As much as $105bln in Sukuk & Bonds’ Issuances, across GCC countries, in 2021

The upward trend in yields, across the Gulf countries extended until January, with 10-year US bonds reaching their highest recorded level in 2 years, at 1.9% before declining recently, while the Gulf bonds’ yields experienced greater growth, as historically narrow spreads against US Treasury bonds began in 2021 to return to normal as the Federal Reserve implements more hawkish policies, the National Bank of Kuwait announced.

With the issuers mostly reaching the target levels for the previous year, the issuance of Eurobonds and local debt instruments that the Gulf countries offered fell in the 4th quarter of 2021, with a total value of about $20 billion.

However, the Year 2021 has experienced a strong performance in general, as $105 billion of bonds and sukuk were issued, and the latter witnessed a noticeable increase, amid investors demand with an increasing pace.

The total number, which witnessed a marginal rise from the levels of 2020, reflects the continuation of the upward trend of regional issuances, in light of the refinancing needs and the fiscal deficit.

Although the latter has declined significantly thanks to the rise in oil prices, it is expected that many Gulf countries will return to recording a surplus, in the current fiscal years’ budgets, and it is likely that issuances will remain relatively strong in 2022, given that borrowing costs are still low, although it has begun to rise, with continued funding requirements for those countries.

Movements of the benchmark bonds yields varied, but they did not witness little change until the end of the 4th quarter of 2021, and the declines came earlier the quarter, in the light of the uncertainty regarding monetary policies, high cases of Coronavirus, and slow growth, the “NBK” report indicated.

However, yields rebounded in November on the back of easing virus fears and more importantly, the Federal Reserve’s signal to raise interest rates several times, in 2022, to rein in inflation, in the US.

The yields of medium-term sovereign bonds, across the Gulf Cooperation Council countries, with the exception of Oman, rose in the 4th quarter of 2021, on the back of higher global bond yields, that began their upward journey in November.

The pace of rise in the Gulf bond yields accelerated in January, which led to an increase in the spread between them and the yields of US Treasury bonds, and this may reflect the increased risks in response to the Fed’s tightening of its monetary policy.

Qatar and Kuwait led the way in increasing their bond yields on a quarterly basis, rising by 32 basis points and 29 basis points, respectively.

Meanwhile, bond yields in Abu Dhabi, Bahrain, and Saudi Arabia saw fairly modest quarter-on-quarter rate of growth of 16, 8 and 2 basis points, respectively.

Omani bonds took the opposite trend, with their yield declining by 9 basis points on a quarterly basis, as a result of the improvement in the main indicators of financial conditions, including the debt-to-GDP ratio and the fiscal deficit, in addition to the fact that credit rating agencies, Moody’s and Standard & Poor’s, changed their outlook, in October, in terms of the GCC member states.

The outlook for Oman is “stable” and “positive”, respectively.

Fitch made a similar move in December.

Similarly, the improvement in the operating environment, in Saudi Arabia, contributed to Moody’s raising the outlook to “stable”, thus, it may limit the possibility of higher returns.

In Bahrain, whose bonds have the highest return among their peers, and are usually less resistant to shocks, they have witnessed a rise in credit risk swap rates, which may be affected by increased volatility and uncertainty, in global markets.

The prospects for the growth of Gulf bond yields will continue to depend on the recovery of the regional and global economy, the trend of global bond yields, and developments to contain the outbreak of the mutating variant, in addition to oil price movements.

GCC revenues may continue to rise in 2022, in line with global revenues, which may witness further rise due to a number of factors, such as the normalization of monetary policy and the possibility of continuing inflationary pressures.