Dovish Fed, Greek Bailout and Iran Delayed Deal Constructive for Sukuk

Commentary by RHB Global Sukuk Markets Research, Kuala Lumpur, Malaysia

Dovish FOMC and delayed Iran deal supported gains. Sukuk tracked the UST curve bull flattener of 4-7bps over the week mainly attributed to the dovish FOMC minutes released Thursday morning and wider fiscal deficit. Additionally, sanctions relief on Iran seemed less likely to fall within this year after its nuclear discussions stayed inconclusive past Thursday’s deadline. The Shanghai Composite Index ended the week with 2 days of recovery (c.4.7%-5.0%) as China’s support measures kicked in. Over the weekend, Greece is given until Wednesday for its parliament to approve the reforms before third bailout can be considered.

Sukuk Gains

Sukuk gained 0.18%-0.26%; yields tightened 4bps. The Bloomberg Malaysia Sukuk Ex-MYR Total Return Index (BMSXMTR) ended the week 0.18% higher at 101.5 (week prior: -0.05% to 101.3). The seemingly higher Beta Dow Jones Sukuk Total Return Index (DJSUKTXR) resonated with 0.26% WoW gain to 155.1 (week prior: -0.18% to 154.7), pulling YTD returns up by 26bps to 1.72% (week prior: -18bps to 1.46%). Meanwhile the weighted average yield on the BMSXMTR tightened 3.8bps to 2.277% (reversing last week’s 3.8bps widening to 2.315%). Top 5 performers in the BMSXMTR were short to mid dated IG names like QATAR 1/23, SECO 4/22, SECO 4/24, GBHK 6/20, and ISDB 3/19 gaining USD30.7m in value (week prior: loss of USD33m).