Middle Eastern sovereign bonds are rallying for a second month as economic growth and cash-rich banks lure investors seeking shelter from Europe’s debt crisis and the U.S. economic slowdown.
Schroder Investment Management Ltd., Abu Dhabi Commercial Bank PJSC and Fideuram Asset Management Ireland Ltd. predict the rise, fueled by Persian Gulf borrowers and Lebanon, may continue. The average yield on the region’s notes declined 17 basis points, or 0.17 percentage point, this month to 4.67 percent, the lowest since November, the HSBC/Nasdaq Dubai Middle East Conventional Sovereign US Dollar Bond Index shows. Rates on emerging-market government debt fell three basis points to 5.64 percent on Aug. 17, data compiled by JPMorgan Chase & Co. show.
Persian Gulf countries “do not represent any sovereign risk given the massive surpluses they have accumulated in the past 5 years as a result of high oil prices,” Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder, which oversees about $230 billion worldwide, said in an e-mail on Aug. 16. “We don’t expect yields to pick up before we see a general pick up in risk appetite.”
Bonds of Qatar and Abu Dhabi have outperformed notes from other emerging economies after Standard & Poor’s cut the U.S. debt rating Aug. 5. The Qatari economy may expand 20 percent this year, according to the International Monetary Fund, while the United Arab Emirates, a federation of which Abu Dhabi is the capital, may grow 3.3 percent. In Lebanon, higher yields and domestic demand for government debt is luring investors, according to Fideuram.
Default Risk
Gross domestic product in the 17-nation euro area rose 0.2 percent in the three months ended in June, the worst performance since the euro region emerged from recession in 2009, European Union data show. In the U.S., the housing market still faces foreclosures, declining construction and falling sales, two years into an economic recovery.
The default risk of Qatar and Abu Dhabi, both rated AA at S&P, climbed less than eight basis points to 98 and 100, respectively, since the U.S. lost its AAA rating for the first time in history, according to data provider CMA. Credit default swaps for Slovenia, also rated AA at S&P, the third-highest, rose 20 basis points to 170, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
The yield on Qatar’s 4 percent bond maturing in January 2015, the security with the highest weighting on the HSBC/Nasdaq Dubai Index, fell 19 basis points this month to 1.97 percent today. The rate on Abu Dhabi’s 6.75 percent bond maturing April 2019 declined 47 basis points to 3.24 percent.
Popular Revolts
The six-member Gulf Cooperation Council holds about one- fifth of the world’s proven oil reserves. Crude prices jumped more than 30 percent over the past five years. They have tumbled 9.9 percent this quarter to $85.98 in New York today.
Further declines in prices could prompt governments in the region to curtail planned public spending, aimed at keeping popular revolts that toppled the presidents of Egypt and Tunisia this year at bay, according to a Nomura Holdings Inc. Aug. 12 report.
Saudi Arabia, the world’s largest oil exporter, announced plans to spend about $129 billion, or about 30 percent of economic output, over the next several years to “appease any possibility of unrest in the region,” Nomura analysts Ann Wyman and Icaro Rebolledo, wrote in the Aug. 12 note. Oil was trading above $120 a barrel when the plan was announced, they wrote.
Lebanese Opportunities
Crude prices may recover in the fourth quarter to $98.75 a barrel, according to the median forecast of 32 analysts on Bloomberg.
“I’d be a buyer in Mideast bonds in Abu Dhabi and Qatar,” Adnan Haider, head of fixed income and equity at Abu Dhabi Commercial Bank, said in an e-mailed answer to questions Aug. 16. “It’s safe here for the next few weeks.”
Some investors have also found buying opportunities in Lebanon, where domestic demand and cash-flush banks help offset a debt-to-GDP ratio at 134 percent -- the highest in the Arab world -- according to Fideuram. The average ratio of loans to deposits at Lebanese banks is 35 percent, according to Credit Libanais SAL, compared with about 50 percent in Egypt and more than 90 percent in the U.A.E.
‘Park’ Money
“Domestic liquidity is abundant and locals are invested a lot in the sovereign debt,” said Emanuele Del Monte, who helps manage about $1.5 billion in emerging-market debt as portfolio manager at Fideuram, who holds the security according to data on Bloomberg. “That’s why in times like these, Lebanon bonds turn out to be perversely very stable compared to other illiquid” bonds on the JPMorgan & Chase Co.’s EMBI Global Index, he said in an e-mailed answer to questions.
The yield on Lebanon’s 4 percent bond maturing in December 2017 has fallen three basis points this month to 4.59 percent today, reaching the lowest level in seven months on Aug. 4, according to data compiled by Bloomberg.
Global economic woes may continue to make sovereign Middle East bonds, especially those in the GCC, a refuge for risk- averse investors, according to Sidani of Schroder.
“Today investors are just happy to park their money somewhere safe, even if it’s not paying much,” he said.
Source: http://www.bloomberg.com
Schroder Investment Management Ltd., Abu Dhabi Commercial Bank PJSC and Fideuram Asset Management Ireland Ltd. predict the rise, fueled by Persian Gulf borrowers and Lebanon, may continue. The average yield on the region’s notes declined 17 basis points, or 0.17 percentage point, this month to 4.67 percent, the lowest since November, the HSBC/Nasdaq Dubai Middle East Conventional Sovereign US Dollar Bond Index shows. Rates on emerging-market government debt fell three basis points to 5.64 percent on Aug. 17, data compiled by JPMorgan Chase & Co. show.
Persian Gulf countries “do not represent any sovereign risk given the massive surpluses they have accumulated in the past 5 years as a result of high oil prices,” Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder, which oversees about $230 billion worldwide, said in an e-mail on Aug. 16. “We don’t expect yields to pick up before we see a general pick up in risk appetite.”
Bonds of Qatar and Abu Dhabi have outperformed notes from other emerging economies after Standard & Poor’s cut the U.S. debt rating Aug. 5. The Qatari economy may expand 20 percent this year, according to the International Monetary Fund, while the United Arab Emirates, a federation of which Abu Dhabi is the capital, may grow 3.3 percent. In Lebanon, higher yields and domestic demand for government debt is luring investors, according to Fideuram.
Default Risk
Gross domestic product in the 17-nation euro area rose 0.2 percent in the three months ended in June, the worst performance since the euro region emerged from recession in 2009, European Union data show. In the U.S., the housing market still faces foreclosures, declining construction and falling sales, two years into an economic recovery.
The default risk of Qatar and Abu Dhabi, both rated AA at S&P, climbed less than eight basis points to 98 and 100, respectively, since the U.S. lost its AAA rating for the first time in history, according to data provider CMA. Credit default swaps for Slovenia, also rated AA at S&P, the third-highest, rose 20 basis points to 170, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
The yield on Qatar’s 4 percent bond maturing in January 2015, the security with the highest weighting on the HSBC/Nasdaq Dubai Index, fell 19 basis points this month to 1.97 percent today. The rate on Abu Dhabi’s 6.75 percent bond maturing April 2019 declined 47 basis points to 3.24 percent.
Popular Revolts
The six-member Gulf Cooperation Council holds about one- fifth of the world’s proven oil reserves. Crude prices jumped more than 30 percent over the past five years. They have tumbled 9.9 percent this quarter to $85.98 in New York today.
Further declines in prices could prompt governments in the region to curtail planned public spending, aimed at keeping popular revolts that toppled the presidents of Egypt and Tunisia this year at bay, according to a Nomura Holdings Inc. Aug. 12 report.
Saudi Arabia, the world’s largest oil exporter, announced plans to spend about $129 billion, or about 30 percent of economic output, over the next several years to “appease any possibility of unrest in the region,” Nomura analysts Ann Wyman and Icaro Rebolledo, wrote in the Aug. 12 note. Oil was trading above $120 a barrel when the plan was announced, they wrote.
Lebanese Opportunities
Crude prices may recover in the fourth quarter to $98.75 a barrel, according to the median forecast of 32 analysts on Bloomberg.
“I’d be a buyer in Mideast bonds in Abu Dhabi and Qatar,” Adnan Haider, head of fixed income and equity at Abu Dhabi Commercial Bank, said in an e-mailed answer to questions Aug. 16. “It’s safe here for the next few weeks.”
Some investors have also found buying opportunities in Lebanon, where domestic demand and cash-flush banks help offset a debt-to-GDP ratio at 134 percent -- the highest in the Arab world -- according to Fideuram. The average ratio of loans to deposits at Lebanese banks is 35 percent, according to Credit Libanais SAL, compared with about 50 percent in Egypt and more than 90 percent in the U.A.E.
‘Park’ Money
“Domestic liquidity is abundant and locals are invested a lot in the sovereign debt,” said Emanuele Del Monte, who helps manage about $1.5 billion in emerging-market debt as portfolio manager at Fideuram, who holds the security according to data on Bloomberg. “That’s why in times like these, Lebanon bonds turn out to be perversely very stable compared to other illiquid” bonds on the JPMorgan & Chase Co.’s EMBI Global Index, he said in an e-mailed answer to questions.
The yield on Lebanon’s 4 percent bond maturing in December 2017 has fallen three basis points this month to 4.59 percent today, reaching the lowest level in seven months on Aug. 4, according to data compiled by Bloomberg.
Global economic woes may continue to make sovereign Middle East bonds, especially those in the GCC, a refuge for risk- averse investors, according to Sidani of Schroder.
“Today investors are just happy to park their money somewhere safe, even if it’s not paying much,” he said.
Source: http://www.bloomberg.com
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