So the Conservative party have scored yet another incredible own goal, that’s two in two for the party which appears to take results for granted as soon as they have a lead in the polls. Some feel the result is positive as the government will now be forced to head for a soft Brexit, with a weaker domestic hand than the 75 seat majority the polls had previously indicated, and the expectations of a hard Brexit.
Moving swiftly on.
As the Qatar-Gulf rift continues, moves are in place to get a dialogue started and the conflict resolved. Yesterday Donald Trump offered up Secretary of State Tillerson for mediation talks; Tillerson is the ex C.E.O. of Exxon Mobil Corp and so has vast experience in negotiating in the Middle East, and has a reputation of skilfully bringing people together. Meanwhile Kuwait’s emir appears to be heading the current negotiations. However, Qatari emir Al Thani on the wires yesterday said ‘Qatar needs to know the background of the problem’ adding ‘Arab states didn't give a chance for Qatar to respond’ and ‘there are no clear demands yet, we're waiting’. It was reported earlier in the week that the Saudi’s had a list of ten conditions Qatar had to agree to before further discussion to end the dispute would take place. We continue to monitor the political situation closely.
We have seen the bond market split into two distinct camps, those that see the disruption as temporary and using market weakness to add to positions, and the camp that sells on any uptick looking for the situation to drag on. With prices lower by around 2.5 points in price on Qatari 10-year sovereign paper since last Friday, there does appear to be good two-way flows in the market, with the initial panic which hit prices early in the week now dissipated.
While longer dated Qatar paper is still down in price, shorter-dated holdings are about ½ point lower as this area of the curve is heavily supported by locals. The likes of Qatar’s transportation company, Nakilat’s bond, maturing in 2033 and the Qatari exploration and production company, Rasgas’ issue, maturing 2027 are only about 25 cents down on the week. Broadly though, most of the immediate selling was done in the more liquid sovereign paper.
Elsewhere, Saudi paper both government and corporate are up in price ranging from ½ point in five to seven year paper to around 1.25 points at ten years and above. In Oman bonds suddenly sold down as Asian investors lightened up on their recent purchases of Oman government bonds with longer dated bonds down up to 3 points, we see this as totally without reason and suggest it is a buying opportunity.
After Standard and Poor’s downgraded Qatar one notch to AA- on Wednesday, Fitch who retains an AA rating added their comments. ‘The decision by several governments, including Saudi Arabia and the UAE, to cut diplomatic and economic ties with Qatar has no immediate impact on Qatar's 'AA'/Stable sovereign rating’ adding ‘Qatar's very large sovereign net foreign asset position should allow it to manage temporary macro-economic disturbances’ and ‘As we noted when we affirmed Qatar's 'AA'/Stable sovereign rating last September, sovereign net foreign assets worth over 200% of GDP mean that the sovereign credit profile is highly resilient to external shocks’. (Could have been written by us).
We continue to monitor the market but for the moment we are neither buyers nor sellers in Qatar, sitting with positions up to 4 credit notches cheap and so offering a nice spread over other equally rated paper.