Sukuk advance to record on thirst for yield

Global Islamic bonds are poised to extend gains after climbing to a record this week, buoyed by Asian economic growth and a pickup in Gulf issuance. The HSBC/Nasdaq Dubai US Dollar Sukuk Index, which tracks 23 sovereign and corporate securities that comply with the religion’s ban on interest, climbed to 124.47 on October 11, the highest level since its inception in 2005. The notes have returned 12.4 per cent so far this year after a gain of 20 per cent in 2009 and a 19 per cent loss in 2008.

Asia’s developing economies will expand 9.4 per cent in 2010, compared with growth of 2.7 per cent in advanced countries, the International Monetary Fund forecast on October 6. Gulf sales of sukuk, which pay asset returns to comply with the religion’s ban on interest, are rising after Dubai World reached an agreement with creditors last month to change terms on $24.9 billion of debt. Companies in the region plan to issue about $5.8bn of Islamic debt in the fourth quarter, the most for the period in three years, data compiled by Bloomberg show.