Regional debt markets edge back from the brink

Are regional debt markets finally seeing a thaw? Issuers may be eyeing an exit from the pricing strike as a 40-50 bps war premium that had crept into investment-grade spreads begins to unwind as the ceasefire shows signs of holding.

Borrowing costs haven’t fully retreated to pre-war levels, analysts tell EnterpriseAM, but the market has grown out of a defensive crouch into a cautious bid-only rally.

The war premium is fading

The headline news? Spreads are narrowing: “We’ve tightened significantly. We’re not back at pre-war levels yet, but we’re pretty close on high-yield and investment-grade names,” Zeina Rizk, partner and portfolio manager at Amwal Capital, tells EnterpriseAM. It’s a sharp reversal from early April, when Rizk told us that market jitters had made it nearly impossible to build order books without offering “meaningful concessions.”

Today, sentiment has flipped. “It looks like there is appetite in the market and cash is being put to work,” Rizk says.

The market hasn’t fully shaken off the risk: A 20-30 bps “geopolitical cushion” remains, “given the fragility of the situation and broader uncertainty in global rates,” Sarah Alyasiri, financial strategist at CFI Financial Global — who accurately predicted that spreads would tighten quickly in a de-escalation scenario — told us.” The key driver now is not just geopolitics, but also the rates backdrop,” she said. Meanwhile, Rizk noted that it’s too early to quantify the risk premium.

The logic is circular: Higher oil prices, driven by the conflict’s tail-end, could keep inflation sticky, forcing central banks to delay the very rate cuts that regional issuers have been banking on for 2026.

Call it a side door

“We haven't seen issuers come to market in a normal roadshow,” but sovereigns are aggressively tapping private placements, Rizk tells us. In the last 10 days alone, we’ve seen a flurry of investment-grade activity in Abu Dhabi, Kuwait, and Qatar that Rizk noted were “flat to the curve so they did not have to pay up,” adding that Egypt was slightly below.

Case in point: Abu Dhabi has now raised USD 4.5 bn through private debt placements, with the latest USD 2 bn placement taking place this week, with a coupon of 4.6%, according to Financial Times. The issuance was arranged by Goldman Sachs.

“Primary markets need more stability … I don’t expect a quick rebound in issuance,” Bank Nizwa’s Muhammad Ahsan says, adding that primary activity “will take some more time to revive.” Ahsan and Rizk agreed that clarity and durability are key for primary debt markets to reopen.

The waiting game

Not everyone is rushing back to the trough. While sovereigns and energy giants can move now, Saudi gigaprojects, developers and more leveraged infrastructure firms are still in wait-and-see mode, Alyasiri says. She previously identified these sectors as the “most sensitive” to pricing strikes due to their reliance on phased issuance.

The good news? They have a buffer: Many of these entities — corporates, banks and real estate developers — front-loaded their 2026 needs during a massive USD 27 bn issuance spree in 4Q 2025 and early this year, Ahsan previously told us. “[They] are not under immediate funding pressure and prefer to delay issuance rather than lock in higher costs, so the market is reopening but in a selective and gradual way,” Alyasiri said.

While they wait, Plan B remains local. As Ahsan previously noted, the local sukuk and bond markets remain a stable avenue for fundraising when international markets are scarce. Issuers also still have access to deep bank liquidity and a growing appetite for private credit from borrowers “seeking more certainty in execution,” according to Alyasiri.

The most dangerous trap right now is a lack of differentiation

Current pricing doesn’t distinguish between the strong and weak quasi-sovereign balance sheets, Alyasiri says. The market is currently operating on the assumption that “implicit government support” is a blanket guarantee — an assumption she previously warned would be tested if global liquidity stayed tight.

“We’ve already seen how quickly sentiment can flip, a single stretch of positive news last week was enough to push markets from one-sided selling into aggressive bidding, with investors scrambling to put money to work again,” Rizk told us earlier this month.

A selective repricing is looming: “While the ceasefire reduces immediate pressure, it does not fundamentally change the underlying risk dynamic, it just postpones it,” Alyasiri said. For now, the region is enjoying a post-war honeymoon, but for the debt markets, the real price of money is still being decided. “If de-escalation holds, we could see relatively fast compression as investors re-engage with high-quality EM credit,” she added.