GCC Sukuk Liquidity Nears Conventional Bond Levels After March Stress

Dollar sukuk from the GCC are trading close to conventional bond liquidity again, Economy Middle East reported from Fitch data, narrowing one of the practical costs investors watch when they compare Islamic and conventional fixed-income instruments.

The August 12 snapshot put outstanding GCC U.S.-dollar sukuk at an average Bloomberg Liquidity Assessment score of roughly 50, almost level with comparable conventional bonds.

When every currency was included, the regional sukuk average rose to 57, while conventional bonds stood at 53.

Liquidity Scores Rebuild After March Trough

The Fitch analysis uses Bloomberg's 1-to-100 liquidity scale, where higher readings point to lower estimated liquidation costs for a security.

The reviewed universe excludes locally rated sukuk and instruments without Bloomberg score coverage, so the numbers describe tradable securities with daily liquidity readings rather than the whole Islamic debt market.

By August 4, more than three quarters of the Fitch-rated sukuk universe had crossed the 50-point threshold.

The comparable share was 64 percent on March 23 and 81 percent in January.

The median score moved to 64 from 55 in March, leaving the market improved but not fully restored to the pre-war level of 68.

Fitch's table split the recovery by credit tier.

Investment-grade sukuk reached an average score of 69, five points above March and close to the January level of 72.

Lower-rated sukuk improved to 40 from 33 over the same period, but that segment still lagged its January reading of 48.

Country And Currency Effects Keep The Recovery Uneven

Market location changed the results as much as the headline regional average.

Hong Kong, Malaysia, Indonesia, Egypt and supranational issuers sat at the top of the Fitch-rated liquidity table.

Egypt, Oman, Malaysia and Ireland were already above their own pre-war scores in August, with Egypt standing 11 points higher.

The currency mix strengthened the case for GCC sukuk.

Once dollar issues were removed, sukuk averaged 68 and conventional bonds averaged 57.

Oman, Bahrain and Saudi Arabia showed a sukuk advantage on that all-currency measure, Qatar and the UAE were level, and Kuwait remained the market where conventional bonds kept the edge.

Ringgit-denominated Malaysian sukuk produced the strongest currency-level result and were the only currency group above the pre-war benchmark.

Euro sukuk also held high liquidity scores.

Dollar sukuk were recovering, but the improvement was slower and closer to the stress period than to the strongest domestic-currency markets.

Recent Issuance Shows Demand Beyond Secondary Trading

Primary-market transactions supplied a second signal that Islamic liquidity is functioning again.

The International Islamic Liquidity Management Corporation sold $1.475 billion of short-term sukuk in May, its biggest single auction since inception.

The sale offered six maturities in one auction, from two weeks through one, two, three, six and nine months.

The Islamic Development Bank followed with a five-year dollar benchmark of $1 billion.

Investor orders exceeded $2.65 billion, producing 2.65-times coverage, and the certificates priced with a 4.227 percent profit rate.

The allocation profile showed official and bank demand rather than only asset-manager buying.

Central banks and official institutions received 49 percent of the deal, banks and private banks took 42 percent, and the remaining 9 percent went to asset and fund managers.

Those allocations matter because official institutions and banks are often core buyers for high-grade Islamic liquidity instruments, especially when market stress makes secondary trading more expensive.

Their participation gives issuers a deeper anchor book while longer-term investors decide how much geopolitical risk to hold.

By geography, the Middle East and Africa took 52 percent, Asia took 24 percent, the United Kingdom and Europe took 19 percent, and offshore U.S. investors took 5 percent.

For Gulf issuers, the liquidity recovery is positive but conditional.

Sukuk liquidity is no longer moving as a single block after the conflict shock; rating strength, currency depth, domestic investor bases and geopolitical exposure now decide which instruments can trade near conventional bond conditions and which still carry higher execution friction.