What is it about?
A new bond market is growing fast in some 16 capital markets. We observe a significant yield difference between the ordinary Treasury bond yield, which is higher than the yield of Treasury Sukuk bonds. Ordinary corporate bond yield is higher than the yield of Sukuk corporate bonds. This is an anomaly requiring explanation.
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Why is it important?
While the market treats the two types of bonds - the ordinary bonds and the new Sukuk bonds - as being equivalent. If that is true there should be no yield differences. Evidence of differential pricing may be due to yet unknown factor.
Perspectives
My view is that the two types of bonds are not similar because there exist important contractual differences such as asset backing and profit sharing in the new type of bond. Hence by documenting evidence of the two being different, we now need to secure the factor that drives the differences.
Prof Mohamed Ariff
Read the Original
This page is a summary of: Significant Difference in the Yields of Sukuk Bonds versus Conventional Bonds, Journal of Emerging Market Finance, July 2017, SAGE Publications,
DOI: 10.1177/0972652717712352.
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