JEDDAH: GCC dollar sukuk and bond yields have surged to five-year highs as Iran war heightens risk perceptions, tightening liquidity and raising borrowing costs across regional debt markets, Fitch Ratings said.
In a new report, the agency said the widening of spreads reflects a sharp shift in investor sentiment since the conflict began, exceeding volatility seen during recent geopolitical flashpoints and regulatory changes — though still falling short of the dislocation triggered by the COVID-19 pandemic.
The escalating conflict in the Middle East has disrupted the global economy’s growth trajectory, the Organization for Economic Cooperation and Development warned, citing risks of a near-halt in energy shipments through the Strait of Hormuz that could push inflation higher.
The OECD said the global economy had been on track for stronger-than-expected growth before the war, but that outlook has now weakened, with global GDP growth projected to ease to 2.9 percent in 2026 before edging up to 3 percent in 2027 as energy price pressures and geopolitical uncertainty weigh on momentum.
“The yield to maturity for S&P MENA Sukuk and Bond Indices has widened significantly since the war began,” Fitch said, adding that the Sukuk Index YTM rose by 69 basis points over a month to 5.15 percent on March 27, while the Bond Index rose by 64 basis points to 5.37 percent.
“The YTM of the S&P GCC High Yield Sukuk Index expanded by 194bp to 7.76 percent over the same period. MENA sukuk continues to trade tighter than MENA bonds, reflecting sustained demand, especially from Islamic banks,” it added.
Fitch said spreads are widening more than during previous periods of volatility, including those following recent geopolitical and market shocks, the onset of the Russia-Ukraine war in February 2022, and sukuk market volatility in the first quarter of 2021 after the implementation of AAOIFI Sharia Standard No. 59.
However, it stated that the pandemic remains the most disruptive event in recent history, adding that between March 2 and March 25, 2020, the MENA sukuk index “widened by 115bp to 3.6 percent, the MENA bond index by 125bp to 3.96 percent, and the GCC high-yield sukuk index by 518bp to 10.28 percent.”
It further said that regional debt capital market issuances have typically rebounded swiftly once tensions have eased following previous geopolitical conflicts in the Middle East.
Liquidity in GCC dollar sukuk and bonds has declined since the start of the war, though it remains broadly comparable across both segments on average. Fitch said it rates around 70 percent of outstanding GCC dollar sukuk, of which about 84 percent are investment-grade, while 90 percent of issuers carry stable outlooks, with no defaults recorded.
GCC countries continue to play a major role in global emerging market debt markets, accounting for around 40 percent of total emerging market dollar issuances, excluding China, as of March 25.
Total GCC debt capital market outstanding reached $1.2 trillion, up 14 percent year on year, with sukuk representing 41 percent. Syndicated loans in the GCC also rose 12 percent year on year to $450.5 billion outstanding, with the Islamic share increasing to 37 percent from 33 percent in the first quarter of 2025.
Fitch said healthy trading activity, sufficient liquidity and broad investor participation can support financing conditions for issuers and may indirectly reinforce credit quality when underpinned by strong fundamentals.
