Sukuk returns recover on less hawkish Fed

today 27 June 2015 GMT

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

The Bloomberg Malaysia Sukuk Ex-MYR Total Return Index (BMSXMTR) made 0.29% during the week to 101.36 (vs. -0.25% to 101.07 in week prior), allowing YTD returns to regain 7bps to 1.14% (vs. -27bps to 1.07% in week prior).

More favorably, the Dow Jones Sukuk Total Return Index (DJSUKTXR) grew 0.45% W-o-W to 154.84 (vs. -0.48% to 154.14 in week prior), earning back 45bps in YTD returns to 1.53% (vs. -100bps to 1.08% in week prior). Accordingly, the weighted average bid yield to worst on the BMSXMTR members tightened 4.8bps to 2.282% (vs. +7.3bps to 2.330% in week prior) tracking the UST curve bull steepener. Global sukuk recovery was thanks to a less hawkish FOMC meeting and ‘dot plot’ (refer to Chart of the Week) which asserted Fed will begin hiking rates by end-2015 but at a more gradual pace despite strong indicators of US economic recovery in May. The top 5 gainers on the BMSXMTR were SECO 24, ISDB 19, SECO 22, QATAR 23, and PETMK 20, adding USD39.14bn in market value.

Investors still wary about GCC risk.

5y USD CDS continued to widen in Bahrain (+13bps to 286bps), Saudi Arabia (+3bps to 66bps), Abu Dhabi (+3bps to 60.56bps) and Turkey (+1bps to 229bps) likely on continuing concerns of deflated oil prices; while yields tightened in only Dubai (-19bps to 177bps) and Qatar (-3bps to 62bps). Elsewhere, credit protection cost for Malaysia rose 2bps to 127bps after CPI increased to 2.1% YoY in May (prior: 1.8%) and ahead of Fitch Rating’s credit review within a month. Meanwhile, Indonesia CDS narrowed 2.5bps to 169.5bps after reporting stronger than expected trade surplus of USD955m in May (prior: USD454m, consensus: USD661m) and holding rates at 7.5%.

Sovereign and supranational enter pipeline.

The start of Ramadan sees slower issuance, but pipeline could stay exciting with at least USD400m planned to enter the market. Pakistan (B3/B-/NR) is eyeing an issuance of up to USD200m, following up the country’s USD1bn sukuk issuance in November 2014 and taking advantage from recent upgrade to B3 by Moody’s. Similarly, IFFIm is eyeing its second sustainable and responsible investment (SRI) sukuk of USD200m 3y, after having sold a larger USD500m 3y in November last year. Also, the International Finance Corp (IFC), World Bank’s lender to the private sector, mentioned interest in a 2015-issuance after its last foray in 2009 for USD100m 5y at 3.037%.

Quarterly USD Sukuk Supply (as at 19-June-2015)

Quarterly USD Sukuk Supply (as at 19-June-2015)


Latest Issued Sukuk