Gulf Bond Demand Stays Strong Despite Higher Global Interest Rates

Demand for Gulf bonds remained strong in the third quarter of 2026, with several sovereign issuers attracting orders worth multiple times the size of their deals despite higher global borrowing costs, according to Kamco Invest.

Kuwait, Saudi Arabia and Qatar recorded order books ranging from two to five times the value of their respective sovereign bond offerings, highlighting continued investor interest in Gulf debt.

Qatar also secured tighter pricing on its first international bond issue of the year, with spreads narrowing by 30 basis points during the transaction.

Total Gulf Cooperation Council bond and sukuk issuance fell 17.5 percent from the second quarter to $42.5 billion in the three months to September. Despite the quarterly decline, issuance during the first nine months of the year rose 3.3 percent from the same period in 2025 to $160 billion.

Sukuk accounted for 44 percent of total GCC issuance during the third quarter, compared with 15 percent in the previous quarter. The increase reflected a renewed return by borrowers to Islamic debt markets.

The rise in regional borrowing costs followed an increase in US interest rates. The Federal Reserve raised its target range by 25 basis points on September 16 to 3.75 percent to 4 percent in a unanimous decision. The rate paid on reserve balances was also increased to 3.9 percent.

The Saudi Central Bank followed by raising its repo rate by 25 basis points to 4.5 percent, while the UAE central bank increased its base rate to 3.9 percent.

Higher rates weighed on Gulf bond indices during the quarter. Kamco said the losses were mainly driven by the global interest-rate environment rather than concerns over the creditworthiness of Gulf issuers.

“Investors were reacting to higher rates rather than to concerns about Gulf credit quality,” the report said.

Kuwait raised $6 billion through a bond sale in July, offering spreads of 70 to 85 basis points over US Treasuries. The deal attracted more than $18 billion in orders.

Saudi Arabia raised $3.25 billion through an Ijarah sukuk in September, with investors submitting orders worth $16.5 billion. Qatar’s $3 billion bond attracted $7.7 billion in orders and was priced at spreads of 55 and 65 basis points.

The strong demand came despite a significant increase in yields. Kuwait’s 10-year bond yield reached 5.509 percent, compared with 4.652 percent in October 2025. Saudi Arabia’s 10-year sukuk was priced at 5.60 percent, up from 4.875 percent in January.

The higher yields contributed to a decline in regional fixed-income markets. The MENA Bond Index fell 4.5 percent in the third quarter, its largest quarterly decline in 16 quarters, while the MENA Sukuk Index dropped 2.2 percent.

Despite the losses, GCC credit spreads remained relatively narrow. The GCC US-dollar credit spread ended September at 88 basis points, around half the 170-basis-point average for emerging markets, according to Kamco.