The spreads between the average yields of bonds issued by Jordan and Egypt and equivalent US Treasuries rose sharply this week.
- Israeli sovereign bonds and credit default swaps (CDS) have seen significant widening, while the Israeli shekel has also sold off prompting intervention from the Bank of Israel.
- The yield on the Saudi Arabian 10-year government bond has risen to 5.93%, an increase of 6.6% since the start of October.
The conflict between Israel and Hamas is putting pressure on borrowing costs in countries around the Middle East, as investors fret that the volatile situation could escalate.
The spreads between the average yields of dollar-denominated bonds issued by Jordan, Egypt and Israel and equivalent US Treasuries have risen sharply this week as additional risk to owning the debt is priced in.
US President Joe Biden visited the region this week after Israel’s military warned more than one million Palestinians to leave northern Gaza as it prepares for a ground offensive that the UN fears could cause massive civilian displacement.
“The events in the Middle East over the past week have led to a modest increase in emerging market risk premia, as investors wait for further developments and digest the headlines,” says Mohammed Elmi, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes.
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