Monday, 25 July 2011

Dubai's Shorter-Dated Bonds May Prove a Better Bet: Arab Credit

Dubai's Islamic bond due 2014 may provide better returns than its 2020 security as investors shift toward shorter maturities and because of the need to hedge against an increase in U.S. treasury yields, analysts say.

The yield gap between the Dubai government's 6.396 percent Islamic bond, or sukuk, due 2014 and its 7.75 percent security due 2020 widened 11 basis points this month, led by a drop in yields on the shorter-dated notes, according to data compiled by Bloomberg. The yield gap between the Abu Dhabi government's 5.5 percent coupon bond due 2014 and its 6.75 percent note due 2019 widened 6 basis points over the month.

'Local investors tend to prefer shorter-dated bonds, while longer-dated bonds tend to see more interest from international accounts,' Nick Stadtmiller, a fixed-income analyst at lender Emirates NBD PJSC, said July 21. 'Liquidity in this region is ample, but liquidity is becoming increasingly tighter in other regions on the back of problems in the euro zone.'

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