Yields on global Sukuk declined to a four-month low in the first week of March, as the European debt crisis and the housing market in the Middle East improve.
“2012 may be the year of the Sukuk; in its longest rally since August 2011. On average yields dropped 21 basis points (bps) to 3.72% and touched a four-month low of 3.71% on the 7th March 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index,” commented Markaz Research in a report.
Prevailing investor sentiment, boosted by optimism on Greece’s latest deal with bondholders to swap their existing holdings of government bonds for new bonds, has also pushed down yields on emerging market debt. Yields on Malaysia’s Sukuk, priced at 3.93% and due in June 2015, declined 10 bps to 1.97% on the 8th March after reaching a record low of 1.94% earlier in the month.
The HSBC/Nasdaq index also showed the spread between average yields on global Sukuk and the Libor narrowed five bps to 267 bps on the 8th March; the tightest since November last year.
“Ample liquidity at Islamic financial institutions, the markets’ revaluation of the European debt crisis and US growth prospects boosted appetite for risk assets everywhere,” Mohieddine Kronfol, chief investment officer of Franklin Templeton Investments (ME) was quoted as saying.
Nonetheless, the Sukuk market’s performance remains hindered by undersupply, despite issuances already almost doubling in value in the year-to-date compared to the same period last year. Malek Khodr Temsah, the assistant vice-president of treasury and investment at Al Baraka Banking Group, noted that until Sukuk sales pick up further, the lack of Sukuk will continue to benefit the secondary market.
source: Islamic Finance News