Bashar Al-Natour, Global Head of Islamic Finance at Fitch Ratings, said that the risk premium in debt markets will not necessarily return to previous levels even if geopolitical tensions ease, explaining that markets are also pricing in uncertainty about the path of US interest rates.

In an interview with Al-Arabiya Business, he explained that the risk premium rose at the start of the crisis, then declined after the signing of the preliminary agreement between the US and Iran, but did not return to pre-crisis levels due to changing expectations of US monetary policy, as markets shifted from expectations of interest rate cuts to expectations of keeping them high, and even possibly raising them, which was reflected in bond pricing.

He added that markets are now reflecting the impact of interest rate expectations more than the impact of geopolitical risks, because higher US yields reduce the attractiveness of debt markets in emerging economies compared to advanced markets, and affect global investor appetite.

He noted that investment-grade bonds have largely recovered from a geopolitical risk premium perspective, but they still carry a premium related to uncertainty about interest rates, while lower-rated issuances have not fully recovered to previous levels.

Regarding sovereign bonds in the region, Al-Natour affirmed that Fitch Ratings has not downgraded countries' credit ratings due to geopolitical tensions, but has revised the outlook for some entities to negative, stressing that credit fundamentals have not changed enough to justify downgrades.

He added that what markets are witnessing is related to higher market and liquidity risks rather than credit risk, noting that current volatility does not reflect weak creditworthiness of countries or companies.

He explained that tensions have indeed led to the postponement of several bond and sukuk issuances, as some issuers preferred to wait to avoid high risk premiums, taking advantage of their financial flexibility. He expects international issuances to continue to be affected until volatility subsides, while local currency issuances continued their activity due to their reliance mainly on local investors.

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