Business | Markets
Credit markets underperform despite positive signs
Improvement in the global investment environment and falling crude oil prices fail to lift sentiments in the Middle East.
- Special to Gulf News
- Published: 23:51 August 16, 2008
Dubai: Last week saw global investor sentiment improving against a backdrop of a stronger dollar and lower oil. However, the improved tone failed to reach Middle Eastern credit market, which reversed trend and underperformed its peers in Europe and the US. We saw the most significant spread widening in bonds issued by Dubai corporates, driven by the weakness in local equity markets.
One of the most notable events in the credit markets last week was the new US dollar bond issued by Citibank on Tuesday. In the same way that last month's Taqa (Abu Dhabi National Energy) deal was priced to yield 40-50 basis points more than Taqa's existing secondary market bonds, the Citi deal was priced 50-60 basis points wider. This had the effect of pushing yields higher across the whole universe of financial bonds, much as the Taqa deal had repriced the GCC corporate sector.
GCC bonds
Global credit markets had a relatively positive week, but this time it was GCC bonds that underperformed. The HSBC/DIFX Indices (www.hsbcdifxindices.com) ended significantly weaker on the week, as both the Sukuk Index and the GCC Conventional Bond Index closed with average spreads 3-3.5 per cent wider.
Credit markets were not helped by the downturn in regional equities, but it was selling from European and US institutions that sent bonds lower. This was exacerbated by the recent heavy bond and loan issuance from the UAE, which has led to market participants hedging their exposure in the bond and credit derivatives markets.
For example over the course of the week, the annual cost of insuring $10 million against a default by the Government of Dubai moved from $170,000 to $185,000. We saw similar moves in many of the regional corporate and sovereign names.
Dirham-denominated debt ended the week another 10 basis points weaker as speculative money continued to flow out of the dirham. The market is still struggling to absorb a large amount of recent issuance, and last week's move in the dollar brought further weakness.
- HSBC Dubai Fixed Income Trading
Share this article
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
What to expect at the Dubai Airshow
We preview what types of aircraft to expect at the Dubai Airshow
-
Air Arabia revamps its website
Upgraded site offers new features, accessible in range of languages
-
Dubai looks ahead to 2010 with new projects
Global visitor numbers up 4% on year and occupancy rates remain strong
