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Dubai sovereign bonds are attractive

Bonds issued by unrated Dubai, still recovering from a crippling debt crisis in 2009, have rallied strongly this year.

November 7, 2012 5:46 by

Spreads on Dubai government bonds remain attractive and potentially offer significant returns for debt investors, Standard Chartered said in a research report on Wednesday.

Based on comparisons with different peers, the U.K.-based lender said Dubai sovereign paper could offer between 70 – 145 basis points of upside from current levels.

“However, we acknowledge that, given the very strong run the sovereign has had this year, the pace of gains is likely to moderate,” the bank said.

Bonds issued by unrated Dubai, still recovering from a crippling debt crisis in 2009, have rallied strongly this year, driven by an economic recovery as well as returning investor confidence after a string of credit-positive news.

Yields on its $650 million 10-year Islamic bond, or sukuk, issued earlier this year at 6.45 percent have dropped to 4.8 percent, for example. Dubai’s $750 million 2020 bond was yielding just 4.5 percent on Wednesday, down from 6.9 percent at the beginning of the year.

The emirate’s credit default swaps, or the cost to insure against a sovereign default, have fallen to levels before the 2009 Dubai World restructuring announcement and Nakheel’s near default.

Dubai’s five-year CDS stood at a midspread of 247 basis points at the end of Tuesday, down from this year’s high of 469 basis points in early January.

However, spreads remain wider than many peers, and hence attractive for investors.


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