Gulf bonds in recent weeks have benefited from “flight to stability” trades and strong regional bids on local bonds.

While developed economies face the risk of renewed recession, the energy-producing economies of the GCC region are forecast to grow around 4 percent this year, and Qatar is poised for a 16.7 percent expansion due to its gas exports.

Analysts say demand is particularly strong for sovereign or state-linked issues from Qatar and Abu Dhabi.

Both states — rated AA — are seen as regional safe havens amid political upheaval in the wider Middle East, and offer attractive yields compared to bonds in other regions.

“I think with the expected pipeline of new issues in the region, and the current low rates’ environment in the US, regional borrowers will still come to the market in the fall to take advantage to tap the available liquidity,” said Adnan Haider, head of fixed income at Abu Dhabi Commercial Bank.

All Gulf currencies are pegged to the US dollar except the Kuwaiti dinar, which is pegged to a basket of currencies.

So far this year bond issues by Abu Dhabi Investment funds Mubadala Development Co. and International Petroleum Investment Co. (IPIC) have been heavily oversubscribed.

In June, an Abu Dhabi debt official said the emirate was likely to issue an international bond in the next 6-12 months. 

Qatar Islamic Bank aims to raise up to $1 billion via an Islamic bond this year, and several Gulf companies have sought approval for bond programs this year, including Oman’s Bank Muscat and Commercial Bank of Qatar.

Given limited primary issuance during Ramadan and summer holidays in Europe, secondary market activity is an indication of investor interest.

“Middle East markets have held up on the whole — there have been ups and downs in Dubai names, but Qatar and Abu Dhabi have held up,” said Haider.

Prices on sovereign and government-related bonds in Qatar and Abu Dhabi have continued to rise, some to historical highs. These bonds are also among the most liquid in the region.

The 6.4 percent Qatar sovereign bond maturing in January 2040 was quoted at 123.50 on Wednesday versus 102.50 on March 15. The 6.75 percent Abu Dhabi 2019 bond was at 122.30 — yielding 3.409 percent — up from 113.75 in March, according to Thomson Reuters data.

Compared with other emerging debt, AA-rated South Korea’s 2019 maturity yields 3.341 percent currently versus the 4.074 percent that Abu Dhabi’s Mubadala 2019s yield.

The bid yield on Chile’s sovereign 2020 bond was 3.0884 percent on Wednesday. Abu Dhabi is rated one notch higher than Chile. 

Dubai is a much more volatile market than the rest of the Gulf as the emirate is still to fully emerge from a debt crisis and a property market slump. That has led to a selloff in Dubai corporate bonds, leading to widening spreads. 

Dubai-based Emirates airline’s 5.125 percent 2016 bond was yielding 5.446 percent on Wednesday, up from 4.839 percent on Aug. 1, but down from 5.643 percent on Aug. 11.

“Middle East/North Africa, Gulf debt have been stuck in an odd state of external fear and tentative trading of late. The recent volatility creates opportunities for emerging market credit, though, with global growth estimates down and equities markets struggling,” said John Bates, head of fixed income at asset manager Silk Invest.

If the Gulf’s primary market does re-open after the religious holiday of Eid in early September , investors are likely to target sovereign issues or top-tier financial institutions’ or government-related credits. 

“It depends on the names,” says a Gulf-based analyst.

“If you’ve good names, and companies that are highly strategic for the government ... foreign money will jump on it. Money is looking at assets backup.”

Sukuk and primarily short-dated paper, will also be more successful than 10 year-plus tenors, driven by strong regional bids if global markets remain jittery. 

Abu Dhabi’s First Gulf Bank attracted $3.8 billion in orders for a $650 million sukuk at the end of July. 

Several Middle East issuers decided to hold off selling bonds in the run-up to Ramadan, as widening spreads made issuing debt more expensive. Of these, Abu Dhabi’s Dolphin Energy and its Tourism Development and Investment Co. (TDIC), were in the market for 10-year paper.

Another was Dubai-based mall developer Majid Al Futtaim (MAF) Holding, a first time issuer.

Daniele Vecchi, senior vice president for group treasury at MAF Holding, said MAF would watch markets for an opening. 

“We are always ready to go as long as the market is favorable,” said Vecchi.

“It is difficult to know where the market stands until way after Ramadan and when European investors are back.”

Regional borrowers could also tap bond markets to refinance debt and fund infrastructure and development projects. 

The International Monetary Fund estimates both Dubai and Abu Dhabi have refinancing needs of about $30 billion to 2012, and Qatar will soon need to prepare for the 2022 soccer World Cup.

“For any potential issuers from this region it is a very challenging time and the timing of any bond issue will be key,” said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi (NBAD).

“Hence they’ll need to be nimble enough to take advantage of any windows of opportunity as and when they arise — which could be quite small — to get a deal away.”