GCC bonds weaker after tankers hit in Gulf of Oman
International bonds issued by Gulf Cooperation Council (GCC) governments 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.
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, according to IHS Markit.
"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."
Details of the tanker incident were not immediately clear, but oil prices surged four percent as the suspected attacks came amid tensions between Iran and the United States over Tehran's nuclear program that were heightened last month by attacks on Gulf oil assets.
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.