Islamic bonds slumped last week by the most since May as Ireland sought aid to shore up its banking system, reducing demand for the yield premium available on sukuk and damping the outlook for new sales.
Average yields climbed 22 basis points to 4.88 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Trading volumes declined because of the holiday in the Persian Gulf from Nov. 15 to Nov. 18 to celebrate the Muslim festival of Eid-al-Adha, according to Kuala Lumpur-based CIMB-Principal Islamic Asset Management Bhd.
Sales of Islamic bonds, which pay asset returns to comply with the religion’s ban on interest, slumped this year due to debt restructurings and falling property prices in the Middle East. The sell-off may persist through to the year-end as investors seek safer securities on concern European governments will struggle to finance budget deficits, said Zeid Ayer, a portfolio manager at CIMB-Principal.
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