Sovereign Sukuk Pricing Analysis: Do Macroeconomic Variables Matter?

  • Maya Puspa Binti Rahman International Islamic University Malaysia
  • Jarita Duasa International Islamic University Malaysia
  • Salina Kassim International Islamic University Malaysia
  • Wan Rahini Aznie Zainudin Universiti Sains Islam Malaysia


Development of the global sukuk market has been pioneered by Malaysia with the launch of the first sovereign 5-year global sukuk of US$600 million in 2002. Since then, the sovereign sukuk market has developed rapidly, with sovereign sukuk being issued by the Governments of Turkey, Qatar, United Arab Emirates, Bahrain and Indonesia to name a few. In view that sovereign securities are not totally free from default, there is also a great deal of concern associated with them as some of the issuing countries have experienced major debt servicing problems in the past such as the Greek debt crisis. As such, it is essential to analyze whether the sovereign sukuk yields do reflect the macroeconomic fundamentals of the issuing country. Based on the analysis of five countries in Asia and the Middle East, this study employs panel data from 2006 to 2013 and shows that only the inflation rate is able to explain the movement of sovereign sukuk yields. The insignificance of other macroeconomic variables such as GDP growth and money supply indicate that tagging the economic growth of the issuing country onto the pricing of sovereign sukuk yields may not be feasible at this juncture. Hence, it is concluded that in order to develop a standalone pricing mechanism different from the one used by the conventional bond market, more efforts are needed so that the sukuk market will expand with even more market player participation to create the liquidity needed for it to develop its own pricing mechanism.

Author Biography

Maya Puspa Binti Rahman, International Islamic University Malaysia
Assistant ProfessorDepartment of Economics


Arundina, Tika., and Omar. “Determinants of Sukuk Rating: Case Study of Malaysian Sukuk.” Paper presented at the Shari‘ah Economics Conference, Faculty of Economics, University of Indonesia. 2-4 February 2010.

Ahmed, Essia Ries, Md Aminul Islam, and Tariq Tawfeeq Yousif Alabdullah. “Islamic Sukuk: Pricing Mechanism and Rating.” Journal of Asian Scientific Research 4, no. 11 (2014): 640-8.

Baltagi, B. Econometric Analysis of Panel Data (Vol. 1). Chichester, UK: John Wiley and Sons, 2008.

D’Agostino, A., and M. Ehrmann. “The Pricing of G7 Sovereign Bond Spreads: The Times, They are A-changing.” ECB Working Paper No. 1520 (2013).

Di Cesare, A., G. Grande, M. Manna, M. Taboga. “Recent Estimates of Sovereign Risk Premia for Euro-Area Countries.” Banca d’Italia Occasional Paper No. 128 (2012).

De Grauwe, P., Y. Ji. “Self-Fulfilling Crises in The Eurozone: An Empirical Test.” Journal of International Money and Finance 34 (2013): 15-36.

European Central Bank Introductory Statement to The Press Conference. 6 September 2012.

Giordano, R., M. Pericoli, and P. Tommasino. “Pure or Wake-Up-Call Contagion? Another Look at the EMU Sovereign Debt Crisis.” Banca d’Italia Working Paper No. 904 (2012).

Haan, L.D., J. Hessel, and J.W. End. “Are European Sovereign Bonds Fairly Priced? The Role of Modeling Uncertainty.” DNB Working Paper No. 399 (2013).

International Islamic Financial Market (IIFM). A Comprehensive Study of the Global Sukuk Market (3rd Edition), 2013.

Jobst, A., P. Kunzel, P. Mills, and A. Sy. “Islamic Bond Issuance: What Sovereign Debt Managers Need to Know.” International Journal of Islamic and Middle Eastern Finance and Management 1, no. 4, (2008): 330-44.

Kinoshita, N. “Government Debt and Long-Term Interest Rate.” IMF Working Paper 06/63 Washington: International Monetary Fund, 2006.

Madura, Jeff. Financial Institutions and Markets (International Edition). Boston: Cengage Learning, 2012.

Modigliani, Franco, and Robert J. Shiller. “Inflation, Rational Expectations and the Term Structure of Interest Rates.” Economica 40, no. 157 (1973): 12-43.

Mishkin, F.S., S.G. Eakins, and W. Gerken. Financial Markets and Institutions. Harlow, Essex: Pearson, 2012.

Naifar, N., and S. Mseddi. “Sukuk Spreads Determinants and Pricing Model Methodology.” Afro-Asian Journal of Finance and Accounting 3, no. 3 (2013): 241-57.

Poghosyan, T. “Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies.” IMF Working Paper No. 12/271 (2012).

Rahman, M.P. “An Analysis on Malaysian Sukuk Spreads.” PhD dissertation, IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, 2015.

Rahman, M.P., and M.A. Omar. “Factors Influencing the Excess Returns of Sukuk: An Empirical Analysis on USD Denominated Sukuk Issued by Corporations in the Gulf Cooperation Council (GCC).” In Islamic Finance - Political Economy, Performance and Risk (Vol. 3), edited by Mehmet Asutay and Abdullah Turkistani, 233-54. Berlin and London: Gerlach Press, July 2012.

Rahman, M.P., M.A. Omar, and S.H. Kassim. “An Application of GARCH Modeling on the Malaysian Sukuk Spreads.” Journal of Islamic Finance 2, No. 2 (2013): 26-37.

Rasameel Structured Finance. Global Sukuk Market Quarterly Bulletin., July 2014.

Tariq, A.A. “Managing Financial Risks of Sukuk Structures.” Loughborough University, UK, September (mimeo) (2004).

Tariq, A.A., and H. Dar. “Risks of Sukuk Structures: Implications for Resource Mobilization.” Thunderbird International Business Review 49, no. 2 (2007): 203-23.

Wilson, R. “Innovation in the structuring of Islamic sukuk securities.” Humanomics 24, no. 3 (2008): 170-81.

Zakaria Nor Balkish, Isa and Abidin. “The Construct of Sukuk, Rating and Default Risk.” Procedia - Social and Behavioral Sciences 65 (2012): 662-7.
How to Cite
RAHMAN, Maya Puspa Binti et al. Sovereign Sukuk Pricing Analysis: Do Macroeconomic Variables Matter?. International Journal of Economics, Management and Accounting, [S.l.], v. 25, n. 3, p. 513-528, nov. 2017. ISSN 2462-1420. Available at: <>. Date accessed: 14 dec. 2017.