Dubai Sukuk yields soar as the market reacts to Ben Bernanke’s statement to taper down purchase of US treasury bonds (BY IFN)

Dubai Sukuk yields soar as the market reacts to Ben Bernanke’s statement to taper down purchase of US treasury bonds

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UAE: Much to the chagrin of issuers, the market has begun to react to the US Federal Reserve’s chairman Ben Bernanke’s statement last week to taper down the purchase of US treasury bonds, which is part of the Fed’s quantitative easing program. In Dubai, Sukuk and bond yields have risen to the highest levels, with the yield on the Dubai government’s 10-year Sukuk reaching 4.97%; higher than the Italian government’s bonds which is now trading at 4.73%. Average yields for Sukuk on the HSBC/NASDAQ Dubai UAE US dollar Sukuk index also rose by 40.8bps, to close at 4.48% last week; the highest levels since January last year, according to sources. The subdued pandemonium experienced among investors in Dubai, experts say, is heightened by the glut of Sukuk and bond purchases that occurred when bond prices were low. Speaking to a Gulf daily, Gary Dugan, CIO for the Middle East and Asia at Coutts Private Bank said: “Investors knew they had too many bonds and Sukuk but thought they had time to get out. The markets have moved to fast for them.” Although some have claimed that the GCC market will be relatively insulated from the Fed’s decision — which is expected to take effect by September this year — due to a high majority of bondholders originating from the GCC market itself, the paring down of quantitative easing is still expected to impact riskier UAE fixed income. Bond yields generally respond to investor sentiment towards the Fed’s purchases, and an ease in treasury bond purchases could spur investors to slow down in terms of buying bonds, pushing yields up and pricing down. According to experts, investors are looking to sit out the current volatile environment before returning to the market.