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Fears about the strength of the global economic recovery have sent investors piling into bonds, and Islamic debt is no exception. The yield on a broad-based index tracking sukuk, or bonds that conform to the Islamic prohibition against interest, recently reached lows not seen since late 2005, according to HSBC, a bank, and Nasdaq Dubai, an exchange operator.

Following the high-profile restructuring of sukuk issued by Dubai’s teetering conglomerates, as well as several outright defaults by borrowers elsewhere in the Gulf, does Islamic debt deserve the safe-haven status that current rock-bottom yields imply?

Yes and no. The scarcity of Islamic bonds is as important a factor in explaining the recent rally as is their safe-haven appeal.

Read more at Financial Services Briefing: “Desperately seeking sukuk” (August 23rd)