UAE corporate bond spreads are wider than at the peak of the war

UAE bond spreads are still nearly double what they were in January, with Abu Dhabi 10-year USD sovereign bonds’ yield spread at 48 bps as of 21 August against 27 bps in January, and the corporate USD curve spread over US Treasuries reaching 115 bps against 79 bps in January, Fitch Ratings said in a new report shared with EnterpriseAM. The corporate spread is even wider than in March, when it was at 108 bps.

Abu Dhabi's 10-year yield is still the second-lowest in the Gulf, rising to about 5.2% by 21 August, after Qatar's 5% — up from roughly 4.5% in January.

Not everyone reads the widening the same way. Franklin Templeton’s Mohieddine Kronfol recently said that Gulf spread widening this year is a US Treasury story — rising Treasury yields pulling capital toward safe US paper and squeezing EM spreads generally — rather than a repricing of Gulf credit risk over war or geopolitics. He added that credit risk in Gulf debt markets remains within the same band it's held for five years. Fitch, however, attributes the sovereign and corporate widening to geopolitical risk premiums.

The Treasury backdrop: The 10-year Treasury yield hit a 20-month high of 4.75% last week before easing to around 4.64%; the 30-year touched a 19-year high above 5.34% before the Treasury doubled its long-bond buyback program to calm the selloff. Two-thirds of respondents in a Bloomberg Markets Pulse survey expect the 10-year to breach 5% before year-end — territory unseen since 2007.

Issuances rose in 1H despite everything…

The spread widening comes against a backdrop of surging issuance. Total USD debt issuance hit USD 24 bn in 1H 2026, up 40% from 2H 2025, almost entirely on the back of bonds: USD bond issuance jumped 108% half-on-half and came in ahead of all of 2025's total, with sovereigns, banks, and corporates all participating.

USD sukuk issuance, by contrast, fell 48% — Fitch points to the added structuring complexity and the longer time-to-market for sukuk relative to plain bonds as issuers rushed to lock in funding during limited windows.

The UAE's DCM grew a modest 3% y-o-y to about USD 320 bn outstanding at the end of 1H 2026, with USD debt making up more than 70% of the total and sukuk accounting for 21%. ESG debt held a 12% share of USD debt outstanding, and ESG issuance was up 16% y-o-y to over USD 3.3 bn. The UAE was the fourth-largest EM (ex-China) USD debt issuer in 1H 2026, with an 8% share, and remains the second-largest DCM in the GCC after Saudi Arabia.

… but not so much for AED issuance

Total AED debt issuance came to USD 40 bn in 1H 2026, down about 20% from 2H 2025. It remains dominated by central bank M-Bills and Finance Ministry Treasury sukuk and bonds — corporate and bank dirham issuance remains rare.

The federal government plans to issue AED 45 bn in local-currency debt in 1H 2026 to help build out the UAE's yield curve and to lengthen Treasury sukuk maturities out to seven years, with room to extend further. Abu Dhabi's own local-currency issuance plans remain on hold.

Retail and digital instruments are multiplying regardless: The Finance Ministry kicked off retail sukuk with an AED 100 mn sale in June, after doubling the initial size of the issuance on high demand, with another AED 50 mn planned for September. Meanwhile, Emirates NBD issued the UAE's first digitally native AED notes.

What’s next: moderate growth through 2H 2026 and into 2027

Fitch expects the UAE’s debt capital markets to keep expanding at a moderate pace through 2H 2026 and into 2027, as diversification funding needs grow. Consolidated UAE government debt is forecast to climb to 25% of GDP in 2026, up from 22.7% in 2025, with banks and corporates expected to keep tapping markets opportunistically alongside sovereigns.

Abu Dhabi is expected to raise new external debt to shore up buffers during this stretch of uncertainty rather than draw down its foreign asset base. The emirate has already raised some USD 5.5 bn, with USD 3 bn raised before the war from a dual-tranche issuance and USD 2.5 bn raised through debt reopenings.

Dubai’s debt load, meanwhile, is expected to stay roughly flat as it refinances maturing obligations, while Sharjah will borrow to cover deficits. Fitch projects that Abu Dhabi will account for about half of total UAE government debt in 2026, with Dubai making up 19%.

The path forward hinges on regional stability: A calmer backdrop could open the door to more favorable funding conditions, while a re-escalation of the US-Iran war, oil-price swings, or renewed rate volatility could all weigh on growth.