Decline in regional credit swaps shows investor confidence

• Credit default swaps drop
• Surged after outbreak of war
• Signal investor confidence

Credit default swaps (CDS) for Gulf sovereigns have fallen since the US and Iran agreed a tentative ceasefire last week, unwinding some of the sharp increases seen after the war broke out and signalling sustained investor confidence in regional government finances.

CDS are derivative contracts that reflect the perceived credit risk of a borrower.

Investors in sovereign bonds often buy CDS as insurance against the issuing country defaulting. Speculators trade CDS to profit from movements in credit spreads. These spreads, quoted in basis points, represent the annual premium to insure the underlying debt.

Qatari CDS have fallen 29 percent from a March peak to April 12, while those of Saudi Arabia, Oman and Bahrain have also declined 22-29 percent from their respective highs. Egyptian CDS are down 23 percent, while those of the UAE have dropped 18 percent.

“Credit default swaps are insurance to protect fixed income investors against downside risk,” said Mohieddine Kronfol, chief investment officer for global sukuk and Mena fixed income at Franklin Templeton in Dubai.

“At the height of the conflict, there was more demand for such protection, which caused CDS to spike, but now that demand is fading,” Kronfol said. 

“There weren’t consistent bids for those CDS, and price movements show that investors haven’t been especially worried that these governments will be unable to repay bonds or that the governments’ ability to finance themselves will be impaired.”

On Sunday, US President Donald Trump said he would impose a naval blockade on Iran following the failure of peace talks between the two countries over the weekend, although their provisional military truce appears largely intact.

• Gulf credit default swaps demonstrate investor confidence
• Investor confidence hits Gulf sovereign bonds
• Gulf foreign inflows increased despite Israel-Iran hostilities

Regional CDS surged from the outset of the war at the end of February to peak in March.

Qatari CDS jumped 70 percent, the biggest increase among Gulf sovereigns.

Bahraini CDS jumped 57 percent from the end of February to a March high, while the peak increase in UAE CDS was 60 percent.

Saudi Arabia’s CDS are lower than before the war began, although these had risen in the first two months of 2026 and are up 3.8 percent this year despite the declines of the past six weeks.

There has been no Mena bond issuance since February.

“Implicit in these CDS prices are investor expectations that the debt market will reopen and Mena sovereigns will have access to good pricing,” said Kronfol.