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GCC debt issuance rises to record high of $32 bn in Q1

The pace of GCC debt issuance rose sharply in the first quarter of 2019 to a historic high of $32 billion, resulting in a 9 percent year-on-year increase in outstanding debt to $478 billion, National Bank of Kuwait (NBK) has said in its economic update released on Tuesday. 

According to the report, the debt issuance was dominated by Qatari and Saudi sovereigns and quasi-sovereigns comprising over $29 billion. 

The issuance of GCC sovereign bonds is expected to be solid in 2019 overall, despite rising oil prices and the boost to public revenues, it said. 

“This is due to largely expansionary budgets and refinancing needs arising from maturing debt. Moreover, the cost of borrowing remains relatively low thanks to good credit ratings and slow US policy rate hikes, foreign investor interest is on the rise, and market access continues to improve,” the NBK report said.

International demand for GCC sovereigns is expected to receive a large boost this year due to the imminent inclusion of five (except Oman) GCC sovereigns in the JP Morgan Emerging markets Bond Index (EMBI), the report said.

“With $300 billion in assets under management allocated to this index by institutional investors, and an assigned GCC weight of 11.3 percent in the EMBI index, the region is estimated to receive approximately $30 billion in fund inflows with more than half going to the larger debt markets of Saudi and Qatar,” the report said.

 

Meanwhile, the report said that benchmark global bond yields trended lower in the first quarter of 2019 before edging slightly higher in April, against expectations of slower global growth, trade uncertainty, and dovish policy shifts by central banks in the US and Europe. 

Yields in the GCC tracked lower, helped by rising oil prices which have benefitted fiscal consolidation efforts. “We expect regional yields to remain low this year given low policy rates and modest inflation, while regional issuance should increase after a modest 2018,” the report said.

Yields across the GCC also likely fell due to the sharp recovery in oil prices from December lows, with Brent ending March at $68 a barrel, up 27 percent quarter-on-quarter.

The slowdown in global growth, dovish signals on monetary policy, low inflation and trade war effects saw global benchmark yields continue to trend down in the first quarter of 2019. 

Outside of the GCC, the report said, Egypt issued $4 billion in dollar denominated bonds in February with maturities of 5, 10 and 30 years, in order to finance the state budget.

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