Global Sukuk: Relative Value

Market sentiment in the month of August was weak, with sell off in EM assets and trade war concerns the key culprits behind the malaise. Amid low liquidity, US treasuries were boosted higher.  UST yields declined across the curve with yields on 2yr, 5yr and 10yr USTs closing the month of August at 2.63% (-5bps m/m), 2.74% (-13bps m/m) and 2.86% (-12bps, m/m) respectively.

Despite the upward push to sukuk trading prices from falling benchmark yields, USD denominated bonds and sukuk failed to maintain prices as credit spreads widened on the back of receding risk appetite. Total return on Emirates NBD Markit iBoxx USD Sukuk index was largely flat during the month owing to the coupon money offsetting the marginal fall in capital prices.

Looking at the trading yields on various sukuk at the end of the month of August, following relative value observations are made:

In the sovereign sector :

• Though yields on BB rated TURKSK 21s, 23s and 24s have recently soared far above the levels shown below, they are likely to remain volatile and investment in Turkey sukuk warrants cautiousness until the dust settles on the current issues.
• RAKS 25s, rated ‘A” appear cheap at yield of 4.16% compared with similar rated MALAYS 26s at 3.79%, particularly since maturity tenure on MALAYS 26s is longer by more than an year.

Sovereign Sukuk Universe

Source: Markit, Emirates NBD Research

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