Major sell off in Rates overnight; MENA flow remains sticky; Al Rahji Bank debut 5Y sukuk inbound

Macro Sentiment

A marginally better environment for risk this morning following a sharp sell-off in rates overnight. Equity Futures are universally green with the fears over a banking crisis abating and improving sentiment. A relatively slow news day over the last 24hrs, all eyes on key economic data later this week (PCE numbers due Friday) and several Fed members due to release statements. Rates are rangebound following a major sell off of 15bps across the curve. Oil is holding onto gains, up $2 over the last session.

MENA Flows

Not much change to MENA sentiment overnight. Improving Oil is providing comfort, but the region overall is incredibly Rate sensitive and the heightened volatility is doing nothing for Investor confidence. Flow remains thin with idiosyncratic buying interests, but overall there’s a general sense of wait-and-see. The region has held up very well vs global peers so there’s a fair amount of watching spreads for any indication of cracks. Overall a sticky situation with little to say in terms of breakout direction at the moment.

High-Grade Sovs/Corps: A significant sell off in Rates will put regional IG on the backfoot this morning. There’s a feeling that the street is positioned long and moving into big data points and quarter end we could start to see supply coming out with portfolios rebalancing. Opening down 0.25-0.375pt this morning and cautious on the bid.

High-Beta Sovs: High-beta Sovs remain under pressure with an overall cautious approach to risk dampening demand, but higher Oil and improving backdrop for equities may see some opportunist buying over the next few sessions. Nonetheless opening 0.375-0.5pt lower this morning with Egypt remaining the major under performer.

HY Corps: Demand for the HY Corp space returned last week with regional real money stepping in to lift cheaper offers in DARALA, ARACEN etc. Supply quickly dissipated and we became better bid across most names, however there the space remains idiosyncratic and highly technical. PVTDEP still remains well offered.

Perps/Financials: AT1s are still a talking point with the banking crisis still in core focus, however there’s been a recovery for local paper over the last week with bids coming back in from real money, lifers and retail alike. The gap that appeared in the wake of the CS meltdown has been steadily closing and on cash price we’re barely 1-2pts lower than before any of this was a cause for concern. Better buyers across the board with little loose supply, if any.?Our Equity Research desk published a relatively bullish report on the MENA banking sector last week, please let me know if you’d like to see it.

New Issues

Saudi based Al Rajhi Banking and Investment Corporation (A1/BBB+/A-), the world’s largest Islamic bank, has mandated a wide range of local and international institutions to launch a debut 5Y USD benchmark ‘sustainable’ Sukuk. This will be the first regional USD new issue in weeks and marks a welcome return to primary market activity. Roadshows started yesterday and no official announcement on pricing yet, but fairly easy to look at Comps around the market. Dubai Islamic Bank 5Y sukuk, 1 notch higher rated, trade a touch below 5% (z+170bps), while senior 5Y sukuk out of Saudi also trades in a similar range. All else being equal I’d like to see this price somewhere around z+180-190bps given rating different to DIB, the vulnerability to spreads and the general malaise for Banking paper at the moment, plus the fact this is a debut issue. Being a sukuk should bring the usual demand from Islamic investors and I expect technicals to be fairly strong, but the usual ‘sukuk’ premium is diminishing by the trade. We saw the same with the recent Air Lease deal, people aren’t prepared to pay needless premiums in this market.

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