Persian Gulf bonds and stocks fell, with Qatari debt headed for a record drop, after the Federal Reserve said it may reduce monetary stimulus this year, sparking a global sell-off in emerging-market assets.
Qatar’s 2020 bond yield soared 31 basis points, or 0.31 of a percentage point, to 3.1 percent, while Bahrain’s 2022 notes yielded 5.88 percent, up 37 basis points. Oman’s benchmark MSM 30 Index (MSM30) fell the most in almost three months, leading declines in the six-nation GCC, where Qatar’s QE Index also retreated 1.1 percent. The BGCC200 Index of regional stocks lost 0.3 percent at 1:21 p.m. in Dubai.
Equity indexes in the oil-exporting GCC, which are among three of the top-five best performers in the world this year, succumbed to some of the selling pressure that drove the MSCI Emerging Markets Index down the most since November 2011 today. Fed Chairman Ben S. Bernanke said yesterday the central bank may start reducing bond purchases and end the program in 2014 should risks to the U.S. economy abate.
“Given the rally in the past year or so, spreads were tight and it is understandable that they are widening today,” Jean-Michel Saliba, London-based economist at Bank of America Merrill Lynch, said by e-mail, referring to Qatari bonds. “Most immune GCC bonds in the short-term would probably be short-dated Islamic bonds such as Dubai’s because of strong support from local investors and the higher yield cushion.”
The yield on Dubai’s 6.45 percent sukuk maturing in 2022 gained two basis points to 5.01 percent.
Oman’s MSM 30 Index dropped the most since March 27 as the nation’s biggest bank, Bank Muscat SAOG, retreated 3.1 percent. Qatar National Bank SAQ, the largest lender in the Middle East, fell 0.7 percent, the biggest decliner by index points on the BGCC200 Index.
The “Fed’s plans to reduce the bond-buying program means lower equity fund flows to emerging markets,” said Santhosh Balakrishnan, Muscat-based equity analyst at United Securities LLC. Stocks are being affected “as foreign investors reallocate funds to safe havens,” he said.
Elsewhere in the Middle East, Dubai’s DFM General Index decreased 0.8 percent and Abu Dhabi’s ADX General Index fell 0.2 percent. Egypt’s gauge fell for a second day.
Israel’s TA-25 Index lost 0.9 percent, set for the lowest close since May 13, while the yield on the nation’s benchmark 4.25 percent bonds maturing in 2023 advanced 12 basis points to 3.91 percent.
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