Gulf sukuk: Order books ‘probably inflated’

Bond and sukuk issues from the Gulf region in the past few weeks have drawn huge investor order books but then performed poorly in the secondary market — a sign that some of the orders are not as solid as they appear.

In order to ensure they obtain part of a new issue, institutional investors are bidding for larger amounts than they actually want, because they assume their bids will be cut when the issuer decides on allocations, traders and analysts say.

The heavy bids are causing the pricing to tighten dramatically in the primary market, setting the bonds up to fall in the secondary market when it becomes clear that underlying demand for them at the final pricing is not as great as the order books suggested.

This phenomenon can happen in bond markets around the world

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