Dubai: Holding bonds that have no set maturity date proved the best bet for Gulf sukuk investors in the first quarter, thanks to the US Federal Reserve. And the Middle East’s best Islamic debt manager says demand isn’t sated yet.

The top three performing Shariah-compliant bonds in the six-nation Gulf Cooperation Council were all so-called perpetual notes, according to data compiled by Bloomberg. Dubai Islamic Bank PJSC’s $1 billion (Dh3.67 billion) sukuk sold in 2013 gave the best returns, handing investors 5.3 per cent, compared with an average for all Islamic bonds of 1.2 per cent. GEMS Education’s $200 million securities were next with 3.8 per cent, followed by Al Hilal Bank PJSC’s $500 million notes at 3.5 per cent.

The rally shows how investors are seeking to improve returns as the US keeps holding interest rates near zero. The Fed last month cut its rates forecast for the year, prompting the biggest drop in the yield on 10-year US Treasuries in more than two months. Investors are also facing a lack of options, with Islamic bond sales in the Gulf off to the slowest start since 2011, according to data compiled by Bloomberg.

“The fact that it’s taking the Fed longer to raise rates is encouraging demand for longer duration paper,” Abdul K. Hussain, the Dubai-based chief executive officer of Mashreq Capital DIFC Ltd, which runs the two best-performing Islamic fixed-income funds in the Middle East and Africa over the past quarter, said by phone yesterday. The trend will continue in the next quarter “and then it will depend how the Fed language changes,” he said.

Saudi electricity

Islamic notes from governments in the GCC returned an average 1.5 per cent in the year through yesterday, and company bonds gave 1.1 per cent.

Saudi Electricity Co’s $1 billion of notes due 2043, which were the best performers last year, declined the most in March, dropping 2.9 per cent. Saudi Arabia is leading a coalition that last week started bombing rebels in neighbouring Yemen.

“Once the cross-border concern started to rise, Seco was one of the biggest underperformers in general,” Richard Segal, the head of emerging-market credit strategy at Jefferies Group LLC in London, said by phone on Tuesday. The move is probably temporary, he said.

Fed increase

Perpetuals tend to be sensitive to rates, according to Hussain. Fed policy makers lowered their forecasts for interest rates during the next two years after their March 17-18 meeting. The estimate for the federal funds rate at the end of 2015 fell to 0.625 per cent from December’s estimate of 1.125 per cent.

Still, officials also opened the door to the first increase in almost a decade by dropping an assurance that the central bank would be patient. Federal Reserve Bank of Richmond President Jeffrey Lacker said Tuesday the main interest rate should be raised in June amid a stronger job market, consumer- spending growth and inflation heading back toward the Fed’s target.

Until then, demand for longer duration paper will remain, according to Segal.

“Investors wanted to stay away from perpetuals because of concerns about the interest and principal deferral,” Segal said. “But now investors feel fairly calm about that.”