Sukuk pricing dynamics - factors influencing yield curve of the Malaysian Sukuk

Awaludin, Fadhlee and Masih, Mansur (2015): Sukuk pricing dynamics - factors influencing yield curve of the Malaysian Sukuk.

Abstract

The greater financial integration particularly over the past decade has led to more synchronized movements of financial markets across the globe. As the domestic debt capital market, particularly the Malaysian Government Securities (MGS) and Government Investment Issue (GII or Government Sukuk), shariah compliant Malaysian sovereign papers deepen, the movements of the domestic yield curve are expected to be increasingly influenced by movements in foreign bond yields as both domestic and foreign investors respond to global developments and sentiments. Based on standard time series techniques, our findings tend to indicate that GII as well as MGS are weakly endogenous subject to changes in US Treasury which are most probably transmitted through changing their investment preference and expectation of liquidity and risk premium that they are willing to pay by holding local currency bonds and sukuk. This may create shifting in yield curve and significant capital outflows or inflows that may destabilize financial condition that requires policy changes. Finally, the findings also reaffirmed that the sukuk is still priced based on the conventional way of pricing bonds.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sukuk, Yield curve; Malaysian Government Securities (MGS), Government Investment Issue (GII); time series techniques
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects

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