Qatar debt issuance stood at $3.9bn in 2022, a research by the National Bank of Kuwait has shown.
GCC domestic and (USD) Eurobond gross issuance reversed its declining trend, increasing to $15.9bn in Q4, 2022 (fourth quarter last year) from $11.8bn in Q3 and $14.7bn in Q3.
Improving fiscal positions supported by higher oil prices in 2022 helped the GCC governments lock in tighter spreads over US treasuries, despite lower financing needs, the report said.
National Bank of Kuwait said increasing interest rates and reduced sovereign financing needs may limit the flow of new issuances in the GCC region.
During most of 2022, the amount of new issuance fell due to rising debt-servicing costs, reduced deficit financing needs amid elevated oil prices, and commitments to medium-term fiscal reforms.
However, the rise in new issuance in fourth quarter last year, particularly in Saudi Arabia, could be attributed to the government’s willingness to lock in tighter spread over US treasuries as the region continues to benefit from high oil revenues and improving fiscal positions.
GCC medium-term sovereign bond yields fell in Q4,2022, unlike their global peers, as strong fiscal balances and robust non-oil growth outlooks boosted the attractiveness of regional bonds amid a falling supply of new benchmark papers.
GCC central banks also ratcheted up benchmark rates in response to the rise in US Fed rates.
GCC bond yields will continue to follow global markets broadly and could reverse some of the gains given still-high inflation and the possibility of further rate hikes by the Fed.
That said, still-elevated oil revenues and much improved fiscal positions could lessen the potential for significant increases in regional bond yields, given lower financing needs.
Globally, sovereign bond yields rose sharply in October before retreating later as the outlook for inflation appeared to moderate.
However, a continued hawkish commentary by central banks pushed yields higher in the second half of December. GCC medium-term sovereign bonds outperformed their global peers, closing the final quarter of 2022 on a better note and posting quarter-on-quarter (q-o-q) declines in yields.
The latest inflation print for most economies indicated that the worst phase of rising consumer prices has likely passed, although prices are still significantly elevated compared to pre-2022 years.
In addition, the price momentum seems to be shifting from goods (such as energy) to services, which could keep the core inflation rate relatively elevated over the coming months.
Major global central banks in December downshifted to interest rate hikes of 50 bps, following outsized increases earlier in the year.
“Further rate hikes are likely in H1, 2023 given still-elevated consumer prices and a tighter job market, which could keep bond yields high from a historical perspective. Inversely, any policy pivot towards rate cuts during the latter part of 2023 should drive a rally in bond prices and hence lower yields for benchmark paper,” National Bank of Kuwait said.
