Oman

The Daily Update - Irrational exuberance

The Daily Update - Irrational exuberance

The US Treasury market rallied across the curve yesterday as geopolitical tensions intensified with the attack on the two oil tankers in the Gulf of Oman.

The short-end of the market is now pricing in three 25bp cuts to the funds rate this year and then nothing more, which is a little strange. Some argue for an ‘insurance cut’ as early as next week’s FOMC meeting sighting the Middle East situation…

The Daily Update - Oman's push to diversify

At the end of last week Standard and Poor's downgraded the Sultanate of Oman’s sovereign rating one notch to BB+, citing a reduction in the nation’s net external asset position; as a result of falling oil prices. Oman is still rated investment grade (IG) by the other two main rating agencies, Baa1 (stable) by Moody’s and BBB (stable) by Fitch. As IG indices require a minimum of two IG ratings (from the three main agencies) for bond inclusion, coupled with the fact that Oman’s sovereign curve already trades relatively wide on a rating basis, our positions saw limited price action. Please note however, that we do not look to the IG indices for guidance on holdings, in fact a number of our holdings across the portfolios are not included in such indices; rather we look for relative value, spread cushion and ownership strength.

The Daily Update - From Oman to Mexico

Yesterday Oman came to the market with a multi-tranche USD5bn bond issue that was close to four times covered but with the 30 year issuing at a generous yield of 6.549%, even for a Baa1 rated credit (Moody’s), it is easy to see why investors were keen to get exposure, ourselves included.  That said, we still see the greatest valuation upside in the quasi-sovereign space.

Most quasi sovereign bonds trade at wider spreads than their own governments and globally quasi sovereigns pay roughly 0.9% more than their sovereign owners. That is a lot of extra compensation for the modest additional risk.

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