GCC Bonds : Is The Worst behind US?

Year to date total return on Barclays Bloomberg GCC Bond Index has been a loss of 2.12%, much in line with our expectations at the beginning of the year and almost entirely attributed to the rising benchmark UST yields. The recent sell off in EM bonds on the back of increasing risk aversion arising from strengthening dollar and increasing trade tensions has made valuation attractive on a historical basis. Though several risks continue to lurk on the horizon, we believe it may be time to begin looking at the GCC bonds favourably, particularly in light of following factors:

• Rising benchmark yields are becoming a manageable risk
• Stronger dollar and capital outflows will affect EM bonds
• Rising oil prices are a credit positive
• Rating downgrades have plateaued
• Economic growth in GCC is expected to improve
• New bond supply is expected to slow
• GCC credit story is currently underappreciated
• GCC bonds are attractive on relative value
• Bahrain is likely to get support from its neighbours