GCC int’l debt market on track for its best yearly performance in a decade

Report prepared by NBK Capital

KUWAIT CITY, Oct 9: The GCC international bond market is on its way to post its best performance since 2010. As of end- August 2019, the Bloomberg Barclays GCC Index, which tracks bonds and Sukuk issued by GCC entities rated as investment grade, was up 15.2% on a year-to-date basis. A large part of this extraordinary performance resulted from the sharp drop in yields globally. It is also the direct result of changes in the US monetary policy, whereby cuts in the Fed benchmark rates are transmitted to all US dollar denominated assets. In essence, the drop in yields on US treasuries, whether from interest rate cuts or changes in economic outlook, lifts the price of USD bonds due to the inverse relationship between interest rates and bond prices.

Furthermore, the GCC region’s performance stands out from similarly rated global peers. For example, the US investment grade corporate bonds index1 rose 13.9% and the Emerging Markets (EM) investment grade index2 rose 13.3% over the same period, a whole 1-2 percentage points lower than the GCC market. It is worth noting that this outstanding relative performance happened in spite of heightened geopolitical tensions in the region and stagnant oil prices, and came largely on the back of J.P. Morgan’s decision to include five GCC countries into its flagship EM Index, the Emerging Markets Bond Index Global (EMBIG)

Continued on Page 24