Islamic 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 since September, 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 16 basis points in the month to 261 yesterday, 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.”
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