THE EXPERT’S VIEW

Market volatility subsided sharply in February as oil price gains and strong US economic indicators put investors back in risk-on mode. The VIX index showed volatility declining to its lowest level of the year last month, down 41 per cent from January’s peak. That said, political deadlock in Europe in the early part of February, followed by Chinese New Year resulted in less than ideal issuance conditions globally in February, driving down volumes by 26 per cent versus January.

March however, saw volatility spike once again as US jobs reports gave rise to expectations of an impending interest rate hike. As a result, on a YTD basis, global bond volumes as of the first half of March continued to lag last YTD, declining 9 per cent to $1.42 trillion. Putting this in perspective, consider that these YTD volumes are the lowest since the financial crisis began in 2008.

Looking across Asia, the same market weakness is seen with overall volumes declining 12 per cent year on year. However, USD issuance has remained robust, with volumes rising 18 per cent and accounting for 31 per cent of issuance, versus 23 per cent last YTD. Across MENA, volumes have remained robust unlike globally. Issuance remains significantly ahead of last YTD with volumes at $8.4 billion and up 40 per cent year on year – amongst the highest of all regions globally. The market window for issuance has gotten another boost from the recent FOMC meeting which has driven benchmark yields lower by 15bps and down 30bps since the peak of the month.

As a result, MENA markets are expected to continue to look busy for the remaining two months of the issuance season ahead of the summer lull.