Global Sukuk Snapshot: May 2022

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Global Market Commentary

As widely anticipated, the US Federal Reserve (“Fed”) unanimously voted to raise rates by 50 basis points (“bps”) to 0.75 - 1.00% on 4 May, the largest increase in 22 years. The committee also announced that it will begin reducing its holdings of US Treasuries (“UST”) and mortgage-backed securities (“MBS”) on 1 June, by $30 billion and $17.5 billion respectively (total $47.5 billion). Over the next three months, the pace will quicken to $60 billion for UST and $35 billion for MBS (total $95 billion). In addition, the US Fed signaled that it may continue hiking rates by another 50bps each in June and July, but ruled out a steeper 75bps hike for now. Policymakers said the US economy is very strong and well-positioned to handle tighter monetary policy, and expects a “soft or softish” landing. In April, the US economy added 428,000 new jobs, surpassing consensus expectations of 380,000 (March revised lower from 431,000 to 398,000); while average hourly earnings dipped from 0.5% to 0.3% month-on-month (“m-o-m”). Despite the mixed US jobs report and slightly dovish Fed meeting outcome, 10-year UST yields continued to march higher past the 3.00% psychological hurdle to touch 3.20% on 9 May, the highest since November 2018. Subsequently, yields plummeted sharply to around 2.70%, after US headline Consumer Price Index eased from 1.2% m-o-m in March to 0.3% in April (year-on-year from 8.5% to 8.3%), suggesting inflation may have peaked. Furthermore, mixed US economic data fueled concerns that the Fed’s steep rate hikes may drag the economy into a recession, driving yields lower. In May, the consumer sentiment index fell sharply from 65.2 in April to 58.4, a fresh decade low; while other economic indicators e.g. housing market has started to soften. Towards month-end, 10-year UST pared some gains to close the month at 2.84% (m-o-m 9bps higher). 

Meanwhile, Brent oil prices gained 12.3% in May from $109.34/barrel (“bbl”) at end-April to $122.84/bbl, driven by persistent concerns over a tight supply market as the European Union agreed to pursue a partial ban on oil imports from Russia. On the other hand, demand for oil is expected to improve as China eases Covid-19 restrictions, and ahead of the summer travel season. On 5 May, Organisation of the Petroleum Exporting Countries Plus (“OPEC+”) ratified a 432,000 barrel per day (“bpd”) increase for June, as scheduled earlier. According to a Bloomberg survey, OPEC+ added only 10,000 bpd in April, much lower than the scheduled increment of 274,000 bpd.

Sukuk News

Imtiaz Sukuk II has on the 12 May 2022 issued two Islamic medium-term notes - a five year facility worth MYR700 million ($59.74 million) with a profit rate of 4.38% and a seven-year facility worth MYR800 million ($82.56 million) with a profit rate of 4.77% — structured under the Murabahah and Wakalah concepts, according to separate filings on the Bond and Sukuk Information Exchange. Both facilities are rated ‘AA2 (s)’ by RAM Ratings.

S&P Global Ratings has reported that it expects the Islamic banking market in Southeast Asia to grow at a compound annual growth rate of about 8% over the next three years, primarily led by Malaysia and Indonesia. The region currently forms 17% of the $1.7 trillion in global Islamic banking assets. This makes it the third-largest market after the Gulf Cooperation Council and the Middle East.

The rating agency further reported that Malaysia and Indonesia hold 81% and 15% respectively of Southeast Asia's Islamic banking assets while Brunei holds 4% of the assets.

Source: Bloomberg, Islamic Finance News, Reuters (as of 31 May 2022)

Data shown is in US Dollar unless otherwise noted.

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DJSUKTXR | Dow Jones Sukuk Index
JPEIGLBL | JP Morgan EMBI Global Total Return Index

Issuances
Source: Bloomberg as at 31 May 2022

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