GCC Bonds ‘Screaming Buy’ If Syria Widens Spread: Analyst

A decline in Gulf Cooperation Council sovereign and state-owned corporate bonds in the event of a U.S. strike on Syria would make them a “screaming buy,” according to Sergey Dergachev at Union Investment Privatfonds.

“These credits are extremely solid,” Frankfurt-based Dergachev, who helps oversee about $10 billion in emerging-market funds, said Aug. 30, singling out bonds issued by companies such as National Bank of Abu Dhabi PJSC and Dubai Electricity & Water Authority, known as Dewa. “There is scarce supply out of this region and there is so much liquidity sitting on the sidelines from local investors.”

The spread between Dewa’s $1.5 billion bonds due October 2020 and the zero-coupon swap curve, or z-spread, widened almost 30 basis points to 296 since Aug. 21, the day when President Bashar al-Assad’s forces allegedly killed 1,300 people in a chemical attack, data compiled by Bloomberg show. The average yield on Gulf Cooperation Council bonds rose last week for a third week, advancing nine basis points, or 0.09 percentage point, to 4.37 percent, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk/Bond Index.

U.S. President Barack Obama yesterday said he would seek authorization from Congress for a military attack on Syria to punish Assad for his alleged use of chemical weapons. The prospect of a U.S. attack had helped push oil prices to the highest level in two years.

“If there will be some attack on Syria and deterioration of security situation, a spread widening in this block would be for me a screaming buy,” Dergachev said in an e-mailed reply to questions submitted by Bloomberg. “I will expect strong local bid and strong bid from Asian investors for high quality names.”

The six-nation Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates and Qatar, supplies about one-fifth of the world’s crude oil. Crude prices have gained 17 percent this year.

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