Islamic Bonds Become Safe Haven

Islamic bonds, known as Sukuk, function differently from conventional bonds by representing ownership in a tangible asset or project rather than a debt obligation. Investors receive a share of the profits generated by the underlying asset, adhering to Islamic finance principles that prohibit charging interest. Global Sukuk issuance reached a record of approximately $264.8 billion in 2025 and is projected to grow to between $270 billion and $280 billion in 2026. The Gulf Cooperation Council (GCC) countries, particularly Saudi Arabia and the United Arab Emirates, are dominant players, accounting for 45% of issuance volume in 2025. The stability of the Sukuk market is bolstered by a dedicated investor base. Approximately 40-50% of issuances are held by Islamic financial institutions, with a growing interest from international investors, often referred to as "crossover" investors. Despite initial market volatility at the start of the Middle East conflict, the Sukuk market has demonstrated resilience. While yields on regional government bonds rose by 3 to 30 basis points, Sukuk yields saw a more moderate increase of 5 to 10 basis points, and spreads to conventional bonds have tightened, indicating strong demand. The growth of the market is also supported by national economic strategies, such as Saudi Arabia's Vision 2030, which utilizes Sukuk to finance large-scale infrastructure projects. A notable trend within the market is the rise of "green Sukuk," which fund environmental and sustainable projects. Sustainable Sukuk issuance reached $11.4 billion in 2025, with Saudi Arabia and the UAE leading this segment. This aligns with a broader global interest in ESG (Environmental, Social, and Governance) investing.