Gulf bond demand stays firm as higher global rates weigh on indices

RIYADH: Gulf bond demand held firm in the third quarter of 2026, with sovereign order books reaching five times deal size even as higher global rates hit regional indices. 

According to Kamco Invest’s GCC Fixed Income Quarterly Q3-2026 report, Kuwait, Saudi Arabia and Qatar drew order books ranging from two to five times the size of their sovereign deals.

Qatar also tightened pricing by 30 basis points on its first international bond of the year.  

Gulf Cooperation Council bond and sukuk issuance fell 17.5 percent from the previous quarter to $42.5 billion, while nine-month issuance rose 3.3 percent from a year earlier to $160 billion.

Sukuk accounted for 44 percent of third-quarter issuance, up from 15 percent in the previous quarter, as borrowers returned to the Islamic debt market, the report showed. 

The rise in Gulf borrowing costs followed the US central bank’s move.

The Federal Reserve raised its target interest-rate range by 25 basis points on Sept. 16 to 3.75 percent-4 percent, in a unanimous 12-0 vote. The rate paid on reserve balances was also increased to 3.9 percent. 

The Saudi Central Bank followed with a 25-basis-point increase in its repo rate to 4.5 percent, while the UAE central bank raised its base rate to 3.9 percent. 

Regional bond indices posted losses, but Kamco said credit quality was not the cause. “Investors were reacting to higher rates rather than to concerns about Gulf credit quality,” the report said. 

Sovereigns draw heavy demand 

Kuwait sold $6 billion of bonds in July at spreads of 70 to 85 basis points over Treasuries, with orders topping $18 billion. Saudi Arabia raised $3.25 billion through an Ijarah sukuk in September, drawing a $16.5 billion order book.

Qatar’s $3 billion deal priced at spreads of 55 and 65 basis points after attracting $7.7 billion in orders. 

The strong order books suggest investor appetite for Gulf sovereign debt remained intact despite the rise in funding costs. 

Kuwait’s 10-year bonds yield 5.509 percent, up from 4.652 percent in October 2025, while Saudi Arabia’s 10-year sukuk priced at 5.60 percent, compared with 4.875 percent in January.  

Higher rates hit bond indices 

The increase in yields weighed on regional fixed-income performance. The MENA Bond Index fell 4.5 percent in the third quarter, its biggest decline in 16 quarters, while the MENA Sukuk Index dropped 2.2 percent. 

Kamco’s data showed that the GCC US-dollar credit spread ended September at 88 basis points, roughly half the 170-basis-point average for emerging markets.  

Source – Arab News