The war premium is fading for GCC investment-grade debt -Fitch

GCC fixed-income yields have largely normalized following the US-Iran framework, with investment-grade spreads over US Treasuries back to pre-war levels, though the recovery gets patchier the further down the credit stack you go, according to a Fitch Ratings statement.

Back to baseline: The yield-to-maturity spread on the S&P GCC Sukuk Index narrowed to 67 basis points (bps) as of Monday, 15 June, broadly back to its pre-conflict level of 70 bps and down sharply from 100 bps in late March. GCC bonds closed the gap further, with spreads narrowing to 89 bps from 126 bps at the March peak.

Not everything has normalized, though. High-yield GCC sukuk spreads remain elevated at 251 bps — down from 390 bps in March but still well above the pre-conflict level of 209 bps, reflecting a risk premium that hasn’t fully unwound.

In absolute terms, yields also remain above pre-war levels: The S&P GCC Sukuk Index yielded 4.94% on 15 June, still 51 bps above where it was before the conflict began, while the GCC Bond Index yielded 5.16%, 43 bps above its pre-conflict level.

The path ahead is uncertain on two fronts. The US-Iran agreement, if signed and implemented, would remove the more acute geopolitical risk premium — but Fitch flags it could still be delayed, not implemented, or followed by renewed instability. And with Fitch no longer expecting any Fed rate cuts in 2026, US Treasury volatility remains a persistent drag on GCC yields given the USD-peg correlation, which runs above 0.89.

The normalization in spreads is already translating into renewed issuance activity. Gulf companies and sovereigns raised USD 11.2 bn in May, with June shaping up similarly active before a summer lull — Bahrain returned to public debt markets for the first time since the war, Dubai Islamic Bank raised USD 1 bn in an AT1 sukuk at near pre-war spreads, and Saudi’s Aljazira Bank closed its USD AT1 capital certificate.

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