Investors are demanding the smallest premium in three years to hold Islamic bonds as political unrest in the Middle East eases and economies expand.
The average sukuk yield was 202 basis points, or 2.02 percentage points, higher than the London interbank offered rate on July 4, the smallest spread since February 2008, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
Average yields on debt that complies with Islam's ban on interest hit a six-year low of 3.82 per cent on June 8, down from 6.12 per cent a year ago.
The protests that spread across the Middle East this year and unseated regimes in Egypt and Tunisia have abated in some countries with Bahrain lifting a three-month state of emergency on June 1 and the United Arab Emirates, Qatar and Saudi Arabia largely spared violent demonstrations.
Emerging-market economies in Asia will grow 8.4 per cent and those in the Middle East and North Africa (Mena) are set to expand 4.2 per cent this year, beating 2.5 per cent growth in the US and 2 per cent in the euro region, according to the International Monetary Fund.
"The political situation played a hand in the rise in sovereign yields, as investors were exiting the whole region in general, UAE and Qatar included," Louis Najem, the Dubai-based head of fixed income at Rasmala Investment Bank, said on Wednesday.
"It seems that now investors are starting to regain comfort."
Dubai builder Nakheel reaching agreements with all of its creditors this week has also buoyed the sukuk market.
The company, whose ability to repay $13 billion (Dh47 billion) of debt was threatened by slumping property prices and the global credit freeze, "received acceptance from 100 per cent of the banks and the required majority of its trade creditors giving their consent to the restructuring plan," it said in a statement on Wednesday.
Nakheel also signed agreements on operational and financial separation from Dubai World, a holding company for the emirate's government.
The legal separation will happen upon completion of Nakheel's restructuring, the real-estate company said.
Dubai World reached an accord with creditors on March 23 on restructuring about $25 billion of debt.
Global sales of sukuk have more than doubled this year, helped by Malaysia's $2 billion issue last month, which attracted more than $9 billion in orders. Total issuance is $13.7 billion so far in 2011, from $6.7 billion in the same period last year, according to data compiled by Bloomberg.
From / Gulf News