Investors bet on fortunes of Gulf’s weakest economies

Bahraini bonds are the best performers this year, while Oman has trailed all of its peers

The bond market is reflecting the diverging fortunes of Bahrain and Oman, the most vulnerable Gulf economies.

The risk premium that investors demand to hold Bahrain’s bonds due 2028 over Oman’s debt of similar maturity has shrunk to about 40 basis points from an all-time high of 346 basis points in June. While Gulf Cooperation Council allies came to Bahrain’s rescue to ward off any default, there’s no guarantee of support for Oman should it need it.

“Oman is in a better position than Bahrain in terms of debt levels and availability of fiscal and external reserves,” said Krisjanis Krustins, a Hong Kong-based director at Fitch Ratings. “But the gap is narrowing and the prospects for GCC support to Oman are less immediate.”

Bahraini bonds are the best performers in the Gulf this year, while Oman’s securities have trailed all of its peers. One reason is that Bahrain will follow Oman and be included in JPMorgan Chase & Co emerging-market bond indexes starting end-January and will benefit from inflows.