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Fitch Ratings said GCC fixed-income markets have seen a reduction in geopolitical risk premiums after the US-Iran agreement, bringing yield spreads on investment-grade debt versus US Treasuries back to pre-war levels. The spread for the S&P GCC Sukuk Index versus the S&P US Treasury Bond Index stood at 67 basis points on June 15, close to the 70 basis points recorded on Feb. 27 before the conflict intensified. This compares with a widening to around 100 basis points on March 23 at the height of tensions, the ratings agency noted in its June 16 assessment. GCC sukuk generally carry lower yields than conventional bonds because of strong demand from Islamic banks, Fitch Ratings added.
Spreads on GCC bonds tightened to 89 basis points as of June 15 from roughly 100 basis points before the conflict and 126 basis points on March 23, according to the Fitch report. By contrast, the spread on high-yield GCC sukuk stood at 251 basis points on that date, improved from 390 basis points in late March yet still above the pre-conflict figure of 209 basis points. Yields on the S&P GCC Sukuk Index fell to 4.94 percent while the S&P GCC Bond Index yielded 5.16 percent, both remaining above their late-February levels despite declining from March peaks. The S&P GCC High Yield Sukuk Index yielded 6.78 percent after a substantial drop from its March high, Fitch Ratings data showed.
GCC fixed-income yields remain closely tied to US Treasury movements because of the dollar peg maintained by most Gulf currencies, a Fitch Ratings analysis found. The S&P US Treasury Bond Index yielded 4.27 percent on June 15, down 15 basis points from end-March but 54 basis points higher than at end-February amid ongoing inflation concerns. Correlation between the S&P GCC Bond and Sukuk Index and the US Treasury index exceeded 0.89 over the period, underscoring the transmission of American monetary conditions to the region. Volatility in US rates has kept absolute GCC yields elevated even as spreads normalised.
More than 84 percent of Fitch-rated GCC sukuk were classified as investment grade at the end of the first quarter of 2026. Sukuk and conventional bond yields maintained an extremely high correlation of 0.98 over the past year, indicating that investors view the credit risk similarly across both instruments. Most rated sukuk represent senior unsecured obligations that rank equally with other senior debt including bonds, although they typically feature more complex structures than conventional bonds, the ratings agency stated.
A Markaz report placed total GCC bonds and sukuk primary market issuance at $55 billion through 95 deals in the first quarter of 2026, a 5.6 percent rise in value from the same period a year earlier despite the geopolitical strains. S&P Global Ratings figures show sukuk issuance by GCC entities increased 13.1 percent year on year in the first four months of 2026. Global outstanding sukuk had already surpassed $1 trillion by the end of 2025, according to an earlier Fitch assessment, highlighting the sector’s expansion even before the latest market stabilisation.
The future path for GCC yields remains uncertain should the US-Iran agreement face delays in implementation or lead to renewed instability, Fitch Ratings cautioned. The agency no longer anticipates any Federal Reserve rate cuts in 2026 given persistent inflation pressures. GCC sukuk and bond performance will continue to reflect broader Treasury rate trends while the region monitors the impact of reopening key shipping routes that had been disrupted earlier in the year.
