By: Muhammad Abdul-Wakeel
Mubasher: While the world is anticipating a recess that has been expected for a long time, giving the unstable global trade situation harmed by quarrels between the new US administration and China, with Europe coming also on the line, global bond yields are suffering.
Global benchmark bond yields fell during the third quarter of 2019 owning to ongoing trade uncertainty, expansionary monetary policies, low inflation, and sluggish economic growth, a report released on Saturday by the National Bank of Kuwait said.
However, the GCC yields managed to avert a negative global impact, helped by solid demand for regional debt stemming from benchmark index inclusion, and relatively good risk-return profiles.
International bond yields continue to fall
The UK gilt yields recorded the highest decline in Q3-19, dropping 35 basis points (bps) quarter-on-quarter (QoQ), followed by the US 10-year treasury yields which plummeted 33 bps QoQ in the same period.
Meanwhile, German bund yields declined by 24 bps in Q3-19, compared to the previous quarter, while the Japanese government yields decreased by 6 bps QoQ.
“Furthermore, it is noteworthy that the US yield curve is no longer inverted, with the recent rate cuts pushing down the short end of the yield curve and making its slope mildly positive.” the NBK's report revealed.
GCC issuance yields were solid in Q3
Total GCC issuance, domestic and international, amounted to $30 billion in Q3-19, including $2.3 billion sukuk. Around 50% of the region's bonds were issued in the UAE.
Moreover, the Qatari government issued $4 billion bonds from July to September, while other GCC markets were active. In August, Oman issued $3 billion dual-tranche Eurobond, tapping international markets for the first time in 18 months.
Bahrain issued $2 billion bonds and Sukuk in September, while Saudi Arabia issued $3.3 billion in two parts in July.
“Strong international demand for GCC debt driven by increasingly low and negative yielding debt in global debt markets, and the need for deficit financing have led to an extension of the strong issuance spree of 1H19 into 3Q19.”
Positive outlook
Multi-year low yields are still incentivising GCC governments to boost their issuance, as $43 billion bonds and sukuk issued in the region are expected to mature by the end of the year, while $36 billion had already matured by October-end. The NBK’s report expects the continuance of solid issuances in GCC through the remainder of 2019.
