slamic bonds slumped in November, snapping a five-month rally, as concern Europe’s debt crisis will spread reduced demand for higher-yielding assets in emerging markets.
Average yields on sukuk climbed 19 basis points, or 0.19 percentage point, in November to 5.04 percent, the highest level in two months, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Yields had dropped 194 basis points from May 31 until the end of October. The extra yield investors demand to hold non-Islamic emerging-market debt instead of U.S. Treasuries rose 22 basis points in the month to 267, according to JPMorgan Chase & Co.’s EMBI+ Index.
“The sukuk market doesn’t work in isolation,” Scott Lim, chief executive officer at Kuala Lumpur-based MIDF Amanah Asset Management Bhd., who oversees the equivalent of $670 million of assets, said in an interview Nov. 26. “Europe is having too many structural problems and this is only the beginning. It is going to be challenging for the bond market.”
The declines pared gains this year for Islamic bonds to 11.2 percent, compared with a 13.3 percent advance for debt in JPMorgan’s EMBI Global Diversified Index.
Ireland agreed over the weekend to an 85 billion euro ($112 billion) aid package from European governments to help shore up its banking system. Yields on Portugal and Spain’s 10-year government debt climbed to records this month on speculation those countries will follow Ireland in seeking a financial bailout.
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