advertisment
 Home » Sukuk Education 

Why Islamic bonds are hot these days

17/09/2010 06:30:00 AM GMT   Comments ()     Add a comment   Print     E-mail to friend
(uk.reuters.com)

U.S. treasuries have rallied substantially year to date, driving down their yield to what some believe to be bubble-like levels.

Yet there's another fixed income market booming right now -- Sukuk's, or Islamic bonds. Sukuk's don't technically pay interest, they rather pay a portion of cashflow, similar to a bond yield, related to an underlying investment in order to be compliant with Islamic law.

Bloomberg:

The average yield on dollar-denominated notes that comply with religious principles from Dubai to Malaysia fell 25 basis points, or 0.25 percentage point, so far this week to 5.22 percent, the lowest level since November 2005, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The yield has dropped 204 basis points this year.

Note that low yields equate to high bond prices. Limited supply of new Sukuk issues has been a factor behind the latest 4-year high:

Global sales of Islamic bonds fell 25 percent to US$8.3 billion so far this year, according to data compiled by Bloomberg. A total of US$20.2 billion was sold last year. Issuance may improve in the second half, led by first-time borrowers, Standard & Poor's said in a statement on July 28.

"Flight-to-Quality"

Moreover, sovereign Islamic bonds have done even better:

Government Islamic bonds have outperformed securities sold by companies this year and the trend is likely to continue, according to Kuala Lumpur-based OSK-UOB Unit Trust. Sovereign notes returned almost 10 percent, compared with an 8 percent gain in corporate debt, the HSBC/NASDAQ Dubai US Dollar Sukuk Indexes shows.

American and European debt problems have to be playing into this as well. As the market for Islamic bonds grows, wealthy Muslim investors are likely to give sovereign 'Islam-compliant' bonds a second look, especially those backed by resource rich nations such as Saudi Arabia. In a sense, a sovereign bond backed by a nation sitting on massive natural resources is backed by commodities, such as oil in the case of Saudi Arabia. Some might prefer betting on the value of Saudi Arabia's oil holding up, rather than Uncle Sam's future deficit.

In addition, non-Muslim investors are catching wind of Sukuks' appeal. Saudi Arabia's Islamic Development Bank is planning a US$100 million Sukuk sale to South Korea soon.

Source: Financial Times

Loading comments ...
advertisment
advertisment


 Regional Sites

Regions Most Popular

- Al Arabiya Digital
- alJazeera Magazine

Islamic

- Islam Online
- Muslims
- Muslim Heritage
- 1001 Inventions

Gulf Jobs

- Saudi Arabia Jobs
- Qatar Jobs
- Abu Dhabi, UAE Jobs
- Kuwait Jobs
- Bahrain Jobs
- Oman Jobs

Regional News

- The National
- Qatar Morning Post
- Al Hayat
- Daily Bahrain
- Arab News
- Daily Saudi
- Emirate Times
- Saudi Arabia Telegraph
- Saudi Arabia Herlad
- Emirates Tribune

Business

- Sukuk
- Islamic Finance
- alJazeera Capital
- Middle East Business
- Al Arabiya Forex
- Emirates Finance Network
- Middle East Education

Middle East Vacancies

- Jobs in Saudi Arabia
- Jobs in Qatar
- Jobs in Abu Dhabi, UAE
- Jobs in Kuwait
- Jobs in Bahrain
- Jobs in Oman

Regional Property

- Dubai Property
- Dubai Property Rental
- Dubai Properties for Sale
- International Property Sales

Regional Marketing

- Marketing in Middle East
- UAE Marketing
- Qatar Advertising
- Kuwait Marketing
- Oman Advertising
- Bahrain Marketing
- Saudi Arabia Advertising
- Dubai Advertising