US Fed’s decision to taper down purchase of US Treasuries not expected to hinder Sukuk market (BY IFN)

US Fed’s decision to taper down purchase of US Treasuries not expected to hinder Sukuk market

Daily Cover

GLOBAL: US Federal Reserve chairman Ben Bernanke’s recent announcement to taper down the Fed’s purchase of US Treasuries as early as September 2013 has spurred a rise in bond yields and a commensurate fall in fixed income securities; causing significant investment losses in May, according to CIMB Principal Asset Management. Over the last five years, the Fed has maintained its policy to keep interest rates near zero, keeping bond prices up and spurring good returns for holders of fixed income securities which include sovereign bonds, corporate bonds and Sukuk. The low interest rate environment had also encouraged investors to seek higher yields from entry into emerging markets and the Sukuk space. However, recent sell-offs by emerging market investors and those seeking fixed returns are not expected to significantly impact the Sukuk market; although it is anticipated that there will be a lull in Sukuk issuances as issuers wait for less volatility in the market and improved yields. The Sukuk market is also said to be currently skewed towards high demand and low on supply, but is expected to remain slightly insulated from current market movement and will not underperform as much as bigger conventional benchmarks.