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Anita Yadav - Head of Fixed Income Research
Published Date: 03 April 2019
Last month the US Federal Reserve revised its dot plot to indicate no more interest rate hikes in the US in 2019. In addition, the tone of the Fed talk has decidedly become quite dovish which caused the UST yield curve to shift downwards. Yields on 2yr, 5yr and 10yrs US treasuries closed the month of March at 2.26% (-29bps, m/m), 2.23% (-33bps, m/m) and 2.40% (-35bps, m/m) respectively.
The steep decline in benchmark yields facilitated substantial gains in bonds and sukuk portfolios. The total return on Emirates NBD Markit iBoxx USD Sukuk index in March was a gain of 1.29% of which +0.96% came from capital gains and remainder from coupon collection.
With exclusion of securities of less than one year to maturity and inclusion of several new securities such as the Al Marai sukuk in the recent past, the sukuk index characteristics have changed slightly.
Currently there are 107 issues totalling circa $100 billion in amount outstanding compared with 100 issues amounting to $93 billion in March last year. Circa 73% is investment grade with issuance from UAE (24%), Saudi Arabia (18%) and Indonesia (16%) dominating the universe.
Total return on Emirates NBD Markit iBoxx sukuk index was a small gain of +0.26% last year compared with a loss of -2.5% on EM bond index. YTD performance of the sukuk universe still remains above that of conventional bonds which is attributed to higher credit ratings and shorter duration in sukuk portfolio compared with conventional counterparts.
Source: Markit, Emirates NBD Research
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