iBoxx Tadawul SAR Government Sukuk Index
The iBoxx Tadawul SAR Government Sukuk Index came under renewed pressure during the third quarter, with prices coming down from August onwards. The Total Return Index (TRI) rose in mid-August to its highest level since Q1, flirting with a 106 level before dropping sharply throughout September (see Exhibit 1). The 5-10-year maturities were the most affected and fell at the sharpest rate.
In relative terms, the Sukuk bond market has also outperformed other emerging markets, a segment that has been affected by the strengthening U.S. dollar and the hiking rates cycle in the past months. The annual yields of the iBoxx Tadawul SAR Government Sukuk kept well below that of the iBoxx Global Emerging Market USD Aggregate Index (USD unhedged), as Exhibit 2 shows. The spread between these two indices widened sharply in July in the aftermath of a reported liquidity injection from the Saudi Central Bank (SAMA) into the country's banking system. Compared with developed markets, Saudi Arabia's inflation is seeing a stark contrast to the elevated levels across most economies, with its inflation rates keeping well on the lower end, at 3% as of the August 2022 reading.
