Bahrain closed its stock exchange and the cost of insuring against default by the Persian Gulf nation held near the highest since July 2009 as clashes between security forces and anti-government protesters intensified.
The nation’s five-year default swaps dropped 7 basis points to 352 today after surging 44 yesterday to surpass Lebanon, whose debt carries a lower credit rating, for the first time in more than a year. Fitch Ratings cut Bahrain two levels yesterday as the government imposed a three-month state of emergency.
Clashes between the mainly Shiite Muslim protesters in Bahrain and forces from their Sunni government injured hundreds and drew criticism from Shiite-ruled Iran. Bahrain is home to the US Navy’s Fifth Fleet and its ruling family has close links with Saudi Arabia, an ally of the United States in its attempts to halt Iran’s nuclear programme.
“From a market fear standpoint the Bahrain situation really boils down to how Iran will react if the military starts coming down very hard on the protesters,” said Akram Annous, West Asia and North Africa strategist at Al Mal Capital PSC in Dubai. “Will it just be sabre rattling or does it turn into something more?”
Record yields
The yield on Bahrain’s 5.5 per cent bond maturing in March 2020 fell 13 basis points, or 0.13 percentage point, today after soaring 31 to a record 6.91 per cent yesterday, data compiled by Bloomberg show.
Fitch cut its rating on the nation’s foreign debt two levels yesterday to BBB, the second-lowest investment grade, citing increased political risk and said another downgrade is possible. The ratings company reduced the grade on Bahrain’s sovereign wealth fund Mumtalakat Holding Co two levels today to BBB, the second-lowest investment grade.
“The two-notch downgrade reflects further material escalation in political risk in recent days, following significant violent domestic protests, military intervention by Gulf nations and the imposition of a state of emergency,” Purvi Harlalka, director in Fitch’s Middle East and Africa Sovereign Ratings Group, said in a statement yesterday. Fitch rates Lebanon’s debt B, five steps below investment grade.