Falling Asian Sukuk Premium Shows Confidence: Islamic Finance - BusinessWeek

The yield premium on Indonesia’s sovereign sukuk over non-Islamic bonds is down 58 percent since the bonds were sold in April 2009, while Malaysia’s debt rallied to a record as investors gain confidence in the securities.

The difference in yield between Indonesia’s 8.8 percent Islamic debt due April 2014 and notes maturing the same year that don’t adhere to the religion’s ban on interest narrowed to 37 basis points, or 0.37 percentage point, from 87 at the time of issue, according to prices from the Royal Bank of Scotland Group. The yield on Malaysia’s 3.928 percent sukuk due June 2015 dropped 45 to 3.39 percent since it started trading May 28, prices from HSBC Holdings Plc show.

Sukuk from Asian nations are rallying before $5.8 billion in planned sales in the region this year, including a 1 billion ringgit ($312 million) offering from Kuala Lumpur-based Cagamas Bhd., Malaysia’s biggest mortgage buyer. Indonesia chose three banks yesterday to manage the sale of as much as $650 million in Islamic bonds in October after securing credit ratings upgrades from Standard & Poor’s Corp. and Moody’s Investors Service in the past year as the economy recovered.