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Anita Yadav - Head of Fixed Income Research
Published Date: 05 March 2018
Although there was no change in the US Federal Reserve’s target interest rate during the month, yields on UST curve continued to shift upwards in anticipation of upcoming rate hikes. Recently approved spending plans will further boost the already strong economic growth in the US and has raised the possibility of number of rate hikes from three to possibly four this year. Yields on 2yr, 5yr and 10yr US treasuries closed the month of February at 2.21% (+5bps), 2.58% (+1bp) and 2.81% (+2bps) respectively. As is expected, price of sukuk rated in the high grade category were more sensitive to interest rate increases than the ones rated in high yield category given the availability of thicker cushion of credit spreads in the high yield names. Consequently sukuk issued by sovereigns such as Malaysia and KSA fell in price more than the ones issued by high yield issuers such as Dar-Al-Arkan and Garuda Indonesia.
Total return on Markit iBoxx Emirates NBD USD Sukuk index for the month was a loss of 0.83%. Excluding the benefit of coupon collection, the capital loss on the index would have been 1.16%.
Looking at current yields we make following relative value observations:
Source: Emirates NBD Research
From LIBOR to SOFR
Interest Rates Monitor
GCC Credit Monitor
Global Sukuk: Relative Value
USD gains on all the other major currencies