The absence of any signal of financial aid from Bahrain’s neighbours sent the Kingdom’s credit risk rising the most in emerging markets this month
The cost of insuring Bahrain’s debt against default for five years jumped 170 basis points on Monday, the most since records began in 2008, to 609; the highest among emerging-market peers after Lebanon.
Investors are seeking reassurance from Bahrain’s Gulf allies that they will offer assistance to the cash-strapped island Kingdom as its finances deteriorate. Its debt has also been battered as escalating trade tensions between the US and China damped demand for riskier assets.
“The deterioration in macro fundamentals has been well-flagged for a while, but markets have just now started pricing this in,” said Carla Slim, an economist for Standard Chartered Plc in Dubai. “Nervousness is increasing on the uncertainty of Bahrain’s outlook given the lack of a medium-term debt sustainability plan and the absence of explicit support from Gulf Cooperation Council allies.”
Bahrain has lagged other Gulf nations like Saudi Arabia in implementing reforms after oil prices fell. It’s the only Gulf oil producer that needs prices to climb beyond $100 a barrel in order to balance its budget in 2018, according to International Monetary Fund estimates.
Five-year credit default swaps for Bahrain’s bonds climbed 170 basis points to a nine-year high of 609 Monday.The yield on Bahrain’s dollar-denominated bonds maturing in July 2022 has climbed to a record 9.26 per cent. In comparison, Ghana’s bonds due a year later yielded about 7.32 per cent Monday even though they are rated two levels lower by S&P Global Ratings than Bahrain’s B+. The Gulf nation’s debt is rated junk by the three major rating companies Currency derivatives show traders are the most bearish on the dinar since 2016, as twelve-month forwards for the Bahraini dinar climbed to 440 on the offshore market Monday.
Bahrain was said to have asked Saudi Arabia, the United Arab Emirates and Kuwait for financial assistance last year as it sought to replenish foreign reserves and avert a devaluation. If Bahrain is forced to do away with the peg, it would raise doubts that other members of the Gulf Cooperation Council can sustain their currency policies.