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00:00This is not a surprise to ninety nine people out there. What I want to know from you is what the shorter and medium term implications are for Kuwaiti debt's. Yeah. I mean quite obviously is not not a huge issue or FTSE to you overall particularly in hard currency. There are a few issues there. They're not a they're not a regular issue or they don't. They don't come every year to the market. But clearly you know a downgrade from such high rating levels typically does not have a huge direct impact on on spreads. So you know I wouldn't expect to see a major amount of change in quality sovereign paper today. I think like you said it was it was pretty much expected. And and it's not a major part of the of the GTC issuance by or at all to begin with. So you know I think the reaction is going to be quite muted. I've got. Good morning. Let's see how about prices. When the cash traders get going today look on the bit on the bigger picture we're looking at serious flattening trades across treasuries across the world. And there is this new regime thinking in terms of five to seven rate hikes. That's a possibility. As you look at the bar flattening at the moment we can't escape that. So how is this bar flattening. And Treasury is going to play out who's most at risk here. Emma DCC for you in the fixed income space. Yeah well I mean I think if you look at if you look at it if you look at how the curve has flattened in fast tightening cycles I mean yeah. And you can see that you know there is still a long ways to go in 2018 you know to to his thirties were down to like 34 35 basis points at the end of 18 to stands inverted in the first quarter of 19. So you know we are we're still very much at the start of this tightening cycle. And so the flattening is also even though we've had a short amount of flattening we've still got a lot more to go. I think from from the perspective of you know fund managers and in the region and how we are looking at the situation given the overall risk profile and the multiple sort of risk factors that we're dealing with we're going to have to kind of be forced to look at high grade. To some extent because that is going to protect against some of the other risk off issues that we have like geopolitics and equity markets. So I think my managers are probably going to have to look at you know incorporating the flattening in their portfolios by potentially buying longer dated higher quality paper in the region and hedging it in the in the five to 10 year space and taking advantage of that continued flattening that we expect out on at least for the remainder of this year. The DCC has outperformed relative to others and especially within the E M because of the higher energy prices. Crude oil specifically I mean now for Brent will close to ninety dollars a barrel. I'm wondering how this trickles through to the outlook for issuances because there could be quite a bit of a version to come to market and current market conditions. What's your outlook there. Yeah. So I think you know on that we just got got the plan from from Saudi which obviously is the largest you know we talked about it being the smaller piece. Saudi is the is the elephant in the room when it comes to issuance. And they have you know that plan for 2022 is calling for you know that their total debt level to remain flat at about 938 billion. Real. Which means which means that they only need to issue about 43 billion this year as opposed to one hundred and twenty five billion last year. And they usually I mean last year the debt it was 60 40 domestic vs. international. And they've said they're going to keep the same mix. So you know you're going to see a significant decline in Saudi issuance this year which obviously will mean that sort of overall UCC issuance is going to decline. You already had a decline between 2010 and 2020 and 21. There was about a 10 percent decline. 21 issuance in the GCSE was about 101 billion or so hundred and 110 billion in 2020. We're thinking you know probably more and back to 2017 2018 levels which is you know around the 75 80 billion mark this year. And I think it's it's a combination of less need because of the higher oil prices. And like you mentioned use have probably more volatile markets maybe you know scaring people away at least for the first half of the year. So tell me. Will you be picking up any ad knock bonds. It looks like they're going to go onto the market. What five billion dollars is what I'd knock out hoping to bring to the market. They get a double a rating. So what kind of appetite do you think there's going to be there for that paper. And just give us a sense of what the market's talking about. Well I can tell you I won't be picking it up unhedged that's for sure but I think that it's you know like I said I think there is there is probably a part of off of your portfolio and fixed income portfolio strategy that says you know you should be buying some of this high quality paper. You just have to be very careful because obviously there isn't enough spread protection built into it. So if rates continue to sell off then you're you know you're going to be in trouble. So you have to look at it on our hedged basis. You know I don't think it's it's you know I wouldn't think it's going to be super cheap. I'm sure they're going to price it you know pretty much along the 80 G.B. curve with a pick up of you know between 30 and 50 bets. But I think given the size of the issuance I would probably be a bit careful. And like I said if I were to get involved it would definitely be on that basis.

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Hussain on Kuwait Rating Cut, EM Fixed Income

Kuwait has been downgraded to AA- by Fitch Ratings, which cited ongoing political constraints on decision-making in the oil-rich nation.Years of political tensions have hindered efforts to diversify the local economy and promote foreign investment. Abdul Kadir Hussain, Managing Director of Fixed Income Asset Management at Arqaam Capital spoke with Yousef Gamal El-Din and Manus Cranny on "Bloomberg Daybreak: Middle East." (Source: Bloomberg)

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