Mubasher: Global and GCC yields traded in a narrow range in the third quarter of the year, with the improving economic outlook being somehow offset by geopolitical tensions and stubbornly low inflation, NBK said in a report issued on Monday.
The Economic Update report noted that issuance in the member countries of the Gulf Cooperation Council (GCC) picked up in Q3-17 but continued to be dominated by domestic sovereign issuance, however, Bahrain was the only country to issue internationally.
The GCC primary debt market activity is expected to stay healthy for the remainder of 2017, the report indicated.
International benchmark yields trended downward for most of the quarter as North Korea worries benefitted safe haven assets. Persistently low inflation in the major economies also continued to put a cap on yields, according to the National Bank of Kuwait (NBK) Economic Research unit.
US government 10-year Treasury yields trended lower for most of Q3-17 but finished 2 basis points higher at 2.3%, as tensions with North Korea spurred a generally risk-off mode, exerting downward pressure on yields. Demand for safe-haven assets also picked up as hurricanes hit the US coast. But yields recovered shortly after as the impact turned out to be less than was previously feared.
Yields on 10-year German Bunds followed a similar path. Despite the continued flow of economic data highlighting the strength in the Eurozone economy, inflation data was still surprising on the downside, putting downward pressure on yields.
GCC yields tracked international markets and closed the quarter slightly lower. The quarter saw a marked improvement in oil prices which also helped GCC yields move lower.
Oil prices rose by 25% in Q3-17, increasing the appeal of regional paper as fiscal concerns were alleviated.
Yields on Qatari and Omani sovereign bonds dropped more notably following the sell-off seen in 2Q17.
GCC debt issuance picked up in Q3-17 as the typically slower summer season came to an end but activity remained predominantly in the public sector.
Total new issuance amounted to $24 billion compared to $21 billion in the previous quarter.
Sovereign activity was strong during Q3-17 with $23 billion in new issuances and the bulk coming from Saudi Arabia. Bahrain tapped international markets for the second time this year with a $3 billion issuance. Saudi Arabia and Kuwait issued domestic debt of $11 billion and $4 billion, respectively.
In early October Saudi Arabia raised $12 billion in dollar-denominated debt almost a year after its debut international issuance. Abu Dhabi also just completed a $10 billion international offering.
GCC debt issuance is expected to remain healthy in Q4-17, as sovereigns continue to seek cheap deficit financing in favorable market conditions, the report concluded.
