Dubai: Bond markets shrugged off further writedowns from Citigroup, Merrill Lynch and JP Morgan to finish the week on a very strong note.
Better-than-expected earnings from Google helped to ease worries about a deep recession, while the Bank of England’s plan to inject more liquidity into the banking system was met with relief by traders.

With much of Wall St now predicting that the market has turned a corner, buying from institutional and retail clients continued to increase this week.

The HSBC/ DIFX Sukuk and GCC Aggregate Indices ( closed the week 14 basis points and 18bps tighter respectively.

The HSBC/ DIFX Subordinated Financials Index underperformed the rest of the market, ending unchanged, whereas the Conventional Senior Financials Index rallied 15bps on the back of regional buying.


This has led to a widening in the relationship between subordinated and senior financials, with spreads over Libor now 2.5 times higher for subordinated bonds than for their senior equivalent.


The new dirham Government of Dubai deal was priced and launched this week in two tranches, both at EIBOR+53bps.

The D2.5 billion Fixed coupon tranche, yielding 4.25 per cent, was issued at 100.00. The Dh4 billion Floating Rate Note tranche, with a coupon of EIBOR+50bps, was issued at 99.857.

We have seen a tremendous amount of demand for the two tranches, with Dh50-Dh100 million size tickets not uncommon over the previous few days. The FRN tranche ended the week at 100.15/100.25, or 6bps tighter, whereas the Fixed tranche ended the week at 99.85/99.95, as US Treasuries (benchmark for the fixed deal) dropped in price.


The Fixed tranche in particular has been popular in the UAE retail market, as the 4.25 per cent coupon compares favourably to dirham deposit accounts, typically paying anywhere between two and three per cent.

Dubai-based developer Nakheel announced a debut dirham-denominated ($1 billion equivalent) two-year benchmark Sukuk Al Ijara offering this week. Separately, the company announced a quadrupling of net profits for 2007 to Dh4.69 billion.

The convertible bond market continues to develop, with Abu Dhabi National Energy’s (Taqa) shareholders also approving the sale of Dh4.15 billion of convertible bonds. These transactions highlight the increasing liquidity to be found in the region’s bond markets.

HSBC Dubai Fixed Income Trading