Dubai: Dubai's Islamic bonds led a rebound in Arabian Gulf sukuk last week, ending the worst stretch of losses in 10 months, as Standard & Poor's raised its outlook on DP World Ltd and Qatar won the right to host the World Cup.

Average yields on Sharia-compliant bonds from the Gulf Cooperation Council fell 13 basis points, or 0.13 percentage point, to 5.72 per cent as of Thursday, according to the HSBC/Nasdaq Dubai GCC Dollar Sukuk Index. The yield on DP World's 6.25 per cent note maturing in July 2017 dropped 18 basis points last week to 6.97 per cent, according to data compiled by Bloomberg. Yields on sukuk sold by Indonesia and Malaysia rose, tracking US Treasuries.

S&P revised the ratings outlook on the world's fourth-biggest port operator to "stable" from "negative" on December 2, citing improved financial results and the debt restructuring at its parent, Dubai World. The prospect Qatar's successful bid will attract international investment and a rally in oil prices bode well for economic growth in the region, according to Manama-based Bahrain Islamic Bank.

Risk factors

"There is a general pickup in regional risk appetite," Hussain Al Banna, head of fixed-income trading at Bahrain Islamic, said in an interview Thursday. "There's optimism Qatar's win will create a construction boom and spill over to the Gulf. I still believe there is a lot of value in regional sukuk."

Investors also sought relatively higher yields as President Barack Obama's extension of US tax cuts increased appetite for riskier assets.

The yield on the Dubai Department of Finance's 6.396 per cent Islamic bonds due in November 2014 dropped 17 basis points last week to 6.61 per cent, the first decline in five weeks, Bloomberg data show.

"There's international buying interest for Dubai names," Louis Najem, a fixed-income sales trader at Rasmala Investment Bank in Dubai, said in an interview on Thursday. "The idea is that there's more bang for your buck when you consider the relevant risk factors."

More money may flow into the Arabian Gulf after Qatar won the bid to host soccer's World Cup in 2022 and as the Malaysian ringgit's retreat from a 13-year high signals funds may exit the Southeast Asian nation for the time being, according to OSK-UOB Unit Trust Management.

"This is hot money; once they made money on the bonds and made money from the currency, out they go," Mohammad Noor Hj A. Rahman, head of the Islamic fund management unit at OSK-UOB Unit Trust, said in an interview from Kuala Lumpur yesterday.

"The Gulf market is attractive after Qatar won the rights for the World Cup."

State-owned Dubai World reached an accord in September with most of its creditors to restructure $24.9 billion (Dh91.38 billion) of debt.