Low spreads propel UAE dollar bond issuance to four-year high

DP World

• 50 dollar bond issuances in 2024
• Total value of $38bn
• Highest total since 2020

UAE dollar bond sales in 2024 have hit the highest annual total in at least four years, as corporate and government bodies take advantage of historically low spreads. 

Issuance in 2025 may reach similar levels, observers believe, as issuers refinance maturing debt.

Fifty separate UAE dollar-denominated bond issuances totalled $37.9 billion in the year to December 17, data from the London Stock Exchange Group shows.

This is the highest annual amount since at least 2020 and is up 72 percent versus the 2023 total of $22 billion.

“The UAE has a fairly large debt maturity wall next year, most of which will be refinanced because there is no pressure to repay,” says Abdul Kadir Hussain, head of fixed income at Arqaam Capital in Dubai.

“UAE entities are highly rated and don’t have any credit concerns per se, so can access markets at relatively attractive spreads. There’s little reason not to refinance.”

Fitch Ratings’ latest review, in June, gave a long-term issuer default rating for the UAE federal government of AA-. This “stable” outlook highlighted the UAE’s “moderate” public debts, “strong net asset external asset position” and high per capita income. AA is Fitch’s second-highest rating bracket and denotes “expectations of very low default risk”, according to its website.

Hussain says: “UAE federal and emirate governments aren’t running steep deficits, so can be more opportunistic in accessing debt capital markets and raising debt.

“The UAE doesn't need to do it, but feels it is prudent to maintain a presence and to issue longer-term bonds at current spreads.”

UAE entities issuing dollar-denominated bonds recently include DP World’s new Blue Bond ($100 million, December 20), Emirates NBD ($500 million, November 21) and the Abu Dhabi National Oil Co subsidiary Adnoc Murban ($1 billion, September 11), S&P Global data shows.

More generally, emerging market bond investors can earn about 5.5 percent on Gulf sovereign debt. Spreads between US treasuries and Gulf sovereign investment grade debt are close to their narrowest in 20 years, Hussain says.

For example, the UAE federal government issued a 10-year, $1.5 billion bond in June at a yield of 4.86 percent, which was just 60 basis points (bps) above US treasuries, the finance ministry said in a statement at the time.

Two years earlier, the UAE government sold a 10-year, $1.75 billion bond at a spread of 100 bps over US treasuries.

The spread between emerging market corporate bonds and US treasuries has also fallen, by 30 percent, to 171 bps on December 26 from 244 bps on January 1.

The Federal Reserve at its mid-December meeting cut the US benchmark rate by 25 bps to 4.25 from 4.5 percent, but also signalled it was likely to make only two further rate reductions, of 25 bps each, in 2025, according to Reuters.

Previously, the Fed had indicated it would cut rates more aggressively. But a strong labour market and continued worries about inflation have caused it to take a less hawkish stance.

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• UAE raises $1.5bn from 10-year bonds

A slight fall in interest rates will lower deposit and money market rates, which would brighten the allure of UAE dollar-denominated bonds further.

In mid-December, the yield on three-month US Treasury bills (T-bills) fell below that of 10-year Treasury bonds for the first time in nearly two years.

This inversion of the yield curve lasted the longest in at least a century, Hussain says, with three-month Treasury bills providing a yield 100 basis points higher than 10-year Treasury bonds at the peak of the inversion.

The return of an upward sloping yield curve will push “a lot of cash” that had been sitting in three-month T-bills into longer-term bonds, which will help stimulate demand for Gulf debt further, Hussain says.