RHB: Flows into Safer Sovereign Sukuk

Commentary by RHB Global Sukuk Markets Research, Kuala Lumpur, Malaysia

Indices ended mixed on lack of fresh leads; yields flat at 2.28%.

The Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) added +0.12% W-o-W to 101.81 (week prior: +0.04% to 101.69), with average yields tightening -0.6bps to 2.284% (week prior: +2.1bps to 2.290%). Gainers were led by QATAR 1/23, QATAR 1/18, SECO 4/24, ISDB 9/19, and ISDB 3/19 gaining USD18.m in value; while underperformers included ISDB 10/18, ISDB 9/19, SECO 4/22, LBSUK 10/19, and GBHK 9/19 shaving USD17.2m in value. On the contrary, the Dow Jones Sukuk Total Return Index (DJSUKTXR) retracted marginally by -0.01% to 155.47 (week prior: +0.05% to 155.49), YTD returns flat at 1.95%.

Flows seen into safer sovereign-backed sukuk.

QATAR 18-23 and ISDB 15-20 topped gainers, tightening 8-19bps to 1.30%-1.70% and 3-17bps to 1.36%-1.83%, respectively, in yields. We also saw attempts to diversify with buying into GBHK 20 (-5bps to 1.95%) and GBP-denominated UKSUK 19 (-5bps to 1.95%); while ADIBUH Pc10/18 (-11bps to 4.65%) were taken up for cushy yields. On the other end, markets cashed out on DAMAC 19 (+38bps to 6.55%) ending its three-week top gainer streak. Also, better sellers were seen for Indonesian government INDOIS complex 18-23 (widening 4-11bps to 2.61%-4.23%) and corporate GARUDA 20 (+12bps to 5.98%) after weaker foreign reserve and GDP data last week; and some FIs like ADIBUH 15, TUFIKA 19, and FGBUH 16 (+6-21bps to 0.67%-4.07%).

Risk for high-quality IG narrowed.

CDS spreads narrowed for Gulf safe-markets like Qatar (-6.4bps to 53.6), Saudi Arabia (-3.2bps to 63.8), Abu Dhabi (-2.7bps to 53.9) – after S&P affirms ratings – and Bahrain (-3.4bps to 277) as it releases and tries opposition leader and lifts ban on pro-opposition newspaper. Turkey CDS rose to 16-month highs of 257 (+11.2bps) despite stronger IP and firm current account data. Similarly, Indonesia and Malaysia’s CDS rose to 17-month and 23-month highs of 207 and 172 after weaker foreign reserves, before retracing to 201 (ahead of better than expected current account deficit) and 168 (after firmer 2Q GDP and current account surplus), respectively.

Quarterly USD Sukuk Supply (as at 14-Aug-2015)