GCC investment-grade debt spreads return to pre-war levels, Fitch says

18/06/2026 02:17 AST

Investment-grade bond and sukuk spreads in the Gulf Cooperation Council have returned to levels seen before the US-Iran conflict as easing geopolitical tensions reduced risk premiums, although borrowing costs remain elevated, Fitch Ratings said.

The yield spread between the S&P GCC Sukuk Index and the S&P US Treasury Bond Index narrowed to 67 basis points on June 15, down from around 100 basis points on March 23 and close to its pre-conflict level of 70 basis points on Feb. 27.

The spread on the S&P GCC Bond Index also tightened, falling to 89 basis points from 126 basis points in March and roughly 100 basis points before the conflict.

The improvement in spreads comes as Gulf debt markets continue to see robust issuance activity. GCC bond and sukuk issuances totaled $55.04 billion in the first quarter of 2026, up 5.64 percent from a year earlier, according to Kuwait Financial Center, known as Markaz.

"The future yield trajectory of GCC fixed income remains uncertain," Fitch said. "The reported US-Iran deal, if signed and implemented, would reduce the more acute geopolitical, credit and market risks linked to the conflict."

Risk premiums on speculative-grade GCC sukuk, however, remained above pre-conflict levels. Spreads stood at 251 basis points as of June 15, compared with 390 basis points on March 23 and 209 basis points before the conflict.

At the same time, expectations for US monetary policy remain a key driver of regional debt markets. A Reuters survey found that 72 of 102 economists expect the US Federal Reserve to keep interest rates within a 3.50 percent to 3.75 percent range for the rest of 2026.

Fitch said GCC fixed-income yields remain closely linked to movements in US Treasury rates because most Gulf currencies are pegged to the US dollar.

The S&P US Treasury Bond Index yielded 4.27 percent on June 15, about 15 basis points below its end-March level but 54 basis points above the level at the end of February.

The S&P GCC Sukuk Index yielded 4.94 percent on June 15, down 18 basis points from its March peak but 51 basis points above its pre-conflict level.

The S&P GCC Bond Index yielded 5.16 percent, 22 basis points below its March peak but still 43 basis points above its pre-conflict level.

Yields remained significantly higher on the S&P GCC High Yield Sukuk Index, at 6.78 percent as of June 15. This was 124 basis points below its March 23 level but remained 96 basis points above the pre-conflict level.

GCC sukuk continued to offer lower yields than conventional bonds on average, reflecting stronger demand from Islamic banks. More than 84 percent of Fitch-rated GCC sukuk were investment grade at the end of the first quarter.

GCC sukuk and bond yields recorded a correlation of 0.98 over the past year, indicating that investors generally perceive the credit risk of sukuk similarly to that of conventional bonds.

Most Fitch-rated sukuk are senior unsecured obligations and rank equally with issuers' other senior unsecured obligations, although sukuk typically have more complex structures.

Fitch said its credit ratings do not directly address the risk of market-value losses caused by changes in interest rates, liquidity conditions, or other market factors.

Healthy trading activity, market liquidity and diverse investor participation can improve financing conditions for issuers and support credit quality when backed by strong fundamentals.

Arab News