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01 March 2024

Gulf CDS rates take a hit on Egypt woes

By Vicky Kapur

Credit default spreads (CDS) of debt issuers in the Gulf Cooperation Council took a hit over the weekend as political tensions in Egypt escalated and angry mobs took to the street in the country, violently protesting against rising unemployment and inflation in Egypt.

The cost of insuring five-year Saudi debt against default – hitherto one of the world’s safest 10 debt issuing sovereigns – rocketed more than 46 per cent on Friday, the latest trading day, and ended at around 110 basis points, up from around 75bp the day before, according to data from CMA Vision.

Qatar too saw its CDS rates shoot up by close to 15 per cent the same day, ending at 102.4bp, up from 89bp the day before.

Dubai CDS too inched up to 452.75bp on Friday, a leap from around 400bp in the weeks before the region flared up,  with problems in Tunisia, Algeria and Yemen all adding up to political tensions in an already disturbed region.

CDS are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.