The prospect of higher interest rates in the wake of Donald Trump’s US election victory could prompt Arabian Gulf governments that have already tapped a record US$40 billion in bonds and sukuk this year to put a hold on issuances. But the break might be no more than temporary if oil prices languish at their current levels.
President-elect Trump’s surprising win has already spooked bond investors over concern that his plans for fiscal stimulus may spur inflation and thereby bring higher interest rates.
Higher interest rates make it more expensive to issue bonds, since these pay their holders interest each year at a rate that reflects prevailing rates at the time of issuance.
“I anticipate no further GCC sovereign issuance this year,” said Andy Cairns, the global head of debt origination and distribution at National Bank of Abu Dhabi.
Given the election result, he said, “the market is expecting a Fed hike at the December 14 meeting plus up to three Federal Open Market Committee moves during 2017. Consequently there’s less incentive for issuers to rush to market to get ahead of the Fed as this is already priced in”.
Regional governments have been selling international bonds and sukuk, in the case of Saudi Arabia for the first time, in a bid to plug holes in their budget, burnt by collapsing oil prices.
“You have the issue of the budget deficits and on that particular equation, it’s safe to say that we will expect another year of pretty significant issuance,” said Mohieddine Kronfol, chief investment officer for global sukuk and Middle East and North Africa fixed income at the asset manager Franklin Templeton.
He added: “2016 has been a record year and the main drive of that has been sovereign issuance to plug the budget deficits that occurred this year and are likely to persist in the next few years with oil prices where they are.”
Mr Cairns likewise expects 2017 volumes to be up even on this year’s record numbers.
GCC governments, as well as related entities and companies, have been ramping up bond sales in international markets. The UAE accounted for $14.4bn issued in the second quarter, Qatar $9bn and Oman $5bn, according to a report in September from the Bank for International Settlements. This year, all types of Arabian Gulf issuers have sold $70bn in bonds and sukuk, of which governments represent 60 per cent of the total.
In April, Abu Dhabi’s Department of Finance sold a $2.5bn tranche of five-year bonds yielding 2.125 per cent and another $2.5bn tranche of 10-year bonds yielding 3.125 per cent. Qatar and Oman have also sold bonds this year at higher rates.
The pièce de résistance came in October when Saudi Arabia came to the market with a US$17.5bn debut dollar international bond sale. The debt sale was split into tranches of five-, 10- and 30-year bonds. The country sold $5.5bn of the five-year tranche, $5.5bn of the 10-year and $6.5bn of the 30-year, with total demand for the bonds amounting to $67bn.
Appetite for emerging market debt has been dented by the November 8 election result. Since Mr. Trump’s victory the Bloomberg US Dollar Emerging Market Sovereign Bond Index has slipped 4.9 per cent. Still, it is up 8 per cent for the year to date as global investors have been hunting for yield in a world of low interest rates.
A broader measure of the bond market, the Bloomberg Barclays global bond index, is down 4.0 per cent since Mr Trump’s election. But it is still up 2.7 per cent for the year to date.
Much of the fortunes of bonds depend on the direction of interest rates, a guessing game that is something of a sport on Wall Street. The most useful indicators are future traders and they see a 98 per cent probability of a Fed hike next month, up from 80 per cent on November 7, according to data compiled by Bloomberg based on Fed funds futures.
mkassem@thenational.ae
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Based: Dubai
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U19 WORLD CUP, WEST INDIES
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Alishan Sharafu (captain), Shival Bawa, Jash Giyanani, Sailles Jaishankar, Nilansh Keswani, Aayan Khan, Punya Mehra, Ali Naseer, Ronak Panoly, Dhruv Parashar, Vinayak Raghavan, Soorya Sathish, Aryansh Sharma, Adithya Shetty, Kai Smith
Mohammed bin Zayed Majlis
A new relationship with the old country
Treaty of Friendship between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates
The United kingdom of Great Britain and Northern Ireland and the United Arab Emirates; Considering that the United Arab Emirates has assumed full responsibility as a sovereign and independent State; Determined that the long-standing and traditional relations of close friendship and cooperation between their peoples shall continue; Desiring to give expression to this intention in the form of a Treaty Friendship; Have agreed as follows:
ARTICLE 1 The relations between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates shall be governed by a spirit of close friendship. In recognition of this, the Contracting Parties, conscious of their common interest in the peace and stability of the region, shall: (a) consult together on matters of mutual concern in time of need; (b) settle all their disputes by peaceful means in conformity with the provisions of the Charter of the United Nations.
ARTICLE 2 The Contracting Parties shall encourage education, scientific and cultural cooperation between the two States in accordance with arrangements to be agreed. Such arrangements shall cover among other things: (a) the promotion of mutual understanding of their respective cultures, civilisations and languages, the promotion of contacts among professional bodies, universities and cultural institutions; (c) the encouragement of technical, scientific and cultural exchanges.
ARTICLE 3 The Contracting Parties shall maintain the close relationship already existing between them in the field of trade and commerce. Representatives of the Contracting Parties shall meet from time to time to consider means by which such relations can be further developed and strengthened, including the possibility of concluding treaties or agreements on matters of mutual concern.
ARTICLE 4 This Treaty shall enter into force on today’s date and shall remain in force for a period of ten years. Unless twelve months before the expiry of the said period of ten years either Contracting Party shall have given notice to the other of its intention to terminate the Treaty, this Treaty shall remain in force thereafter until the expiry of twelve months from the date on which notice of such intention is given.
IN WITNESS WHEREOF the undersigned have signed this Treaty.
DONE in duplicate at Dubai the second day of December 1971AD, corresponding to the fifteenth day of Shawwal 1391H, in the English and Arabic languages, both texts being equally authoritative.
Signed
Geoffrey Arthur Sheikh Zayed
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Sinopharm vaccine explained
The Sinopharm vaccine was created using techniques that have been around for decades.
“This is an inactivated vaccine. Simply what it means is that the virus is taken, cultured and inactivated," said Dr Nawal Al Kaabi, chair of the UAE's National Covid-19 Clinical Management Committee.
"What is left is a skeleton of the virus so it looks like a virus, but it is not live."
This is then injected into the body.
"The body will recognise it and form antibodies but because it is inactive, we will need more than one dose. The body will not develop immunity with one dose," she said.
"You have to be exposed more than one time to what we call the antigen."
The vaccine should offer protection for at least months, but no one knows how long beyond that.
Dr Al Kaabi said early vaccine volunteers in China were given shots last spring and still have antibodies today.
“Since it is inactivated, it will not last forever," she said.
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C Suri 67, B Hameed 63 not out
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