GCC bonds weaker after tankers hit in Gulf of Oman

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Tanker attacks cause jitters among Gulf bond investors

By Davide Barbuscia and Saeed Azhar

DUBAI, June 13 (Reuters) - International bonds issued by Gulf Cooperation Council (GCC) states weakened on Thursday after two tankers were hit in suspected attacks in the Gulf of Oman, a month after a similar incident in which four tankers in the region were struck.

Regional debt markets did not react to the May attacks - when oil tankers were hit off the Fujairah emirate, one of the world's largest bunkering hubs - but their weakness on Thursday showed the latest incident was making investors jittery.

"Even if direct conflict is ultimately avoided, heightened geopolitical tensions will continue to act as a headwind to local financial markets," said Jason Tuvey, senior emerging markets economist at Capital Economics.

"So long as tensions remain elevated, investors are likely to demand a higher risk premium to hold assets in the region."

Saudi Arabia's bonds due in 2049 were down over 0.6 cents in early trade while $3 billion in bonds issued by state oil giant Saudi Aramco, also due in 2049 , were down by roughly 1 cent on the dollar, according to Eikon Refinitiv data.

The price drop, however, started to ease later in the day and regional credit default swaps - which indicate the cost of insuring against a default - were fairly stable, with only Saudi Arabia up by one point early in the morning, IHS Markit said.


"This looks like a knee-jerk reaction," said a Gulf analyst, who asked not to be named. "The market is very sensitive to geopolitical developments."

Regional stock markets were also in the red, with a missile strike by Yemen's Houthi rebels on a civilian airport in southern Saudi Arabia on Wednesday also weighing on risk sentiment.

The tensions have hit regional stock markets at a time of strong performance, with Saudi Arabia in particular enjoying money inflows as it entered the MSCI emerging market index last month. The Saudi main exchange, Tadawul, was down 1.5% on Thursday. The index is still up 14% so far this year, making it one of the Gulf's best performing markets.

The Gulf of Oman lies at the entrance to the Strait of Hormuz, a major strategic waterway that is a conduit from Middle East producers for a fifth of global oil consumption.

S&P Global Ratings said in a research note this week that if diplomatic and military tensions escalate to the point of threatening a blockage of the Strait, this could lead to an increase in Gulf sovereigns' funding costs, and to a disruption in foreign direct investment.

But the agency said it had not changed any of its ratings or its outlooks for Gulf governments.

This article appears in: Stocks , World Markets

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