Sukuk Issuance Is Another Victim of Rising U.S. Treasury Yields

Global sukuk issuance is far short of the records set in previous years as the rise in U.S. Treasury yields sends shivers through fixed-income markets.

Sovereign and corporate borrowers globally have sold about $2 billion of Shariah-compliant debt this year. That’s the lowest amount in a comparable period since 2015, according to data compiled by Bloomberg.

Sukuk Issuance Is Another Victim of Rising U.S. Treasury Yields

“With surging Treasury yields, issuance has been unsurprisingly subdued,” Akber Khan, senior director of asset management at Al Rayan Investment in Doha, said. “Issuers would rather wait for some calm.”

U.S. Treasury yields have soared over the past week as inflation bets picked up, prompting a fixed-income selloff globally. That forced a rising tally of money managers to scale back market exposures while Wall Street strategists pared back their bullish playbooks.

Adding to the muted sukuk issuance, the rally in oil prices left “regional sovereigns with shrinking deficit predictions and less pressure to raise capital,” Khan said. “Banks also have plenty of liquidity so have been more focused on raising quasi-equity capital.”

Moody’s Investors Service doesn’t expect sukuk issuance to pick up for the rest of the year. The ratings company expects global long-term sovereign issuance to be moderate this year after record sales in 2020, as higher oil prices, lower coronavirus-related expenditure and accelerating economic activity help reduce financing needs.

©2021 Bloomberg L.P.

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