Yields gap widens against Indonesian, UAE investment grade Islamic bonds
(KUALA LUMPUR) The plunge in global equities is proving to be a boon for Malaysia as investors seek out the nation's investment- grade Islamic bonds over sukuk from Indonesia and the United Arab Emirates.
Malaysia's dollar-denominated Syariah-compliant notes due in 2015 yielded 2.184 per cent on Monday, down 15 basis points in the biggest one-day drop in a month. The yield is the lowest since June 27, compared with similar-maturity Indonesian Islamic debt, rated four steps lower than Malaysia by Standard & Poor's. The yield gap with sukuk of emirate Ras Al Khaimah, rated a step higher than Malaysia, is the widest since June 17. (source)
US stocks is at their lowest since 2008 and about US$2.5 trillion was erased from global equities as S&P's cut of the US credit rating and the euro region debt crisis stoked concern that the global economy would slow. The price of oil, one of the UAE's chief export earners, has slumped 14 per cent in the past week.
The Bloomberg-AIBM- Bursa Malaysia Sovereign Shariah Index, which tracks the nation's most- traded domestic debt, rose to a record on the day of the US downgrade.
Malaysia's 'yields should go lower because of a flight to quality', said Zeid Ayer, who helps oversee US$700 million as chief investment officer in Kuala Lumpur at CIMB-Principal Islamic Asset Management Bhd, yesterday.
'Malaysia's credit rating is obviously stronger and the stronger credits will perform better than some of the names. Oil prices are down and certainly there's a concern because the price of oil is pretty much what drives Gulf economies.
S&P rates Malaysia, the world's biggest sukuk market, the fourth-lowest investment grade of A-. Indonesia is rated BB+, the highest junk rating, while Ras Al Khaimah is rated A.
Sovereign bonds with higher ratings in emerging markets will attract investors because they are seen as being safer, said Mohd Noor Haji A Rahman, chief executive officer at OSK-UOB Islamic Fund Management Bhd in Kuala Lumpur. Asian economic growth outpacing that in the US and Europe will also help draw capital, he said.
The yield on Malaysia's 2.991 per cent bonds due in July 2016 declined 15 basis points, or 0.15 of a percentage point, to 2.546 per cent on Monday, down 51 basis points since they first started trading on June 30, according to Royal Bank of Scotland Group plc prices.
The yield on 4.646 per cent notes maturing in July 2021 dropped 28 basis points to 3.681 per cent and has dropped 99 basis points since they were issued in June, RBS prices show.
The nation's 2015 sukuk yielded seven basis points off the lowest level since they first started trading in June, and has slid from a 2011 high of 3.227 per cent hit on Feb 8.
The yield on Indonesia's 2014 sukuk climbed 24 basis points to 2.665 per cent on Monday, the biggest one-day jump since November. Ras Al Khaimah's bonds maturing in 2014 yielded 2.561 per cent, up seven basis points.
The yield on Islamic bonds due in 2014 issued by Dubai, which isn't rated, jumped 18 basis points, the most since June 15, to a one-month high of 4.828 per cent. The notes are trading at the highest yield premium to the Malaysian sukuk since Aug 4.
Foreign investors raised holdings of Malaysian bonds to a record this year, with the government receiving US$9 billion in bids for a June offering of US$2 billion of dollar sukuk due in 2016 and 2021. The country boosted its foreign currency reserves to an all-time high of US$135 billion in July.
Average yields on global sukuk climbed 12 basis points to 3.5 per cent on Aug 5, the biggest one-day advance since Feb 1, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. Yields reached a six-year low of 3.38 per cent on Aug 4.
The difference between sukuk yields and the London interbank offered rate widened 17 basis points to 214 on Aug 5, the largest daily move since March 11, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. -- Bloomberg
Source : http://www.businesstimes.com.sg/sub/news/story/0,4574,451378,00.html - Aug 10, 2011
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