Sukuk’s liquidity edge across the GCC
Fitch reports that sukuk, or Islamic bonds, now show stronger liquidity than conventional bonds in Saudi Arabia, Oman and Bahrain, based on Bloomberg Liquidity Assessment scores. Across all currencies, sukuk recorded an average liquidity score of about 57, while bonds stood at 53, signalling lower expected liquidation costs for sharia-compliant instruments.
The study highlights a sharper gap in local-currency markets. When US dollar-denominated paper is excluded, sukuk liquidity rose to a score of 68, compared with 57 for bonds, widening the advantage in markets where domestic investor bases are more active. Fitch uses Bloomberg’s Liquidity Assessment, where securities with the lowest estimated liquidation costs within an asset class receive a score of 100, and those with the highest costs receive a score of 1.
Dollar markets tell a more balanced story. Fitch notes that, as of 12 August, US dollar-denominated GCC sukuk and bonds both showed average liquidity scores around 50, reflecting cautious trading amid ongoing regional tensions. Even so, sukuk held the upper hand once all currencies are considered, underlining their appeal for investors seeking tradable Islamic exposure.
GCC sukuk liquidity also shows clear differentiation by market. In Qatar and the United Arab Emirates, sukuk and bonds shared identical liquidity scores, indicating that investors see little practical difference between Islamic and conventional instruments in terms of execution. Kuwait stands out as the main exception, where conventional bonds remain more liquid than sukuk, highlighting structural or investor-preference factors that still favour non-sharia paper.
One analyst remark from a Gulf fixed-income desk captures the shift: GCC sukuk are quietly becoming the more nimble leg of the region’s credit trade.
How far has sukuk recovered from pre-war levels?
Fitch’s data show sukuk liquidity edging close to pre-war readings, even as conflict-related risk continues to affect regional markets. Most Fitch-rated sukuk have seen improving scores this year, with August marking the strongest average level since the war began, although many instruments still sit below their January pre-war marks.
Country detail is encouraging for Islamic finance allocators. Sukuk from Egypt, Oman, Malaysia and Ireland have all surpassed pre-war liquidity levels, according to Fitch’s latest review. Egypt’s sukuk liquidity score rose 11 points above its pre-war reading, supported by higher trading activity and deeper investor participation. These moves reinforce the idea that sukuk can regain, and even exceed, prior liquidity norms despite geopolitical tension.
Fitch also notes that, by currency, liquidity improvement is uneven, with some local markets and segments recovering faster than others. Yet the broad message is supportive for Islamic fixed income. Sukuk outstanding in the wider GCC and core Islamic finance jurisdictions remains substantial, and liquidity metrics are now stabilising rather than deteriorating. This trajectory is consistent with broader growth trends covered in our analysis of the global Islamic finance market heading toward $9.6trn by 2030, and with the UAE’s positioning as a key Islamic finance connector for a $7.5trn opportunity.
What does the trend mean for investors?
For regional and global fixed-income investors, the tilt in GCC sukuk liquidity has direct portfolio implications. More liquid sukuk offer a comparatively easier exit route when risk sentiment shifts, while still meeting sharia requirements for Islamic institutions. The relative tradability also supports the case for using sukuk as core funding instruments for Gulf sovereigns and high-grade corporates, particularly in Saudi Arabia and Oman where liquidity outperformance is clear.
Allocation decisions between sukuk and conventional GCC debt will now hinge not only on yield and credit but also on this emerging liquidity gap. As Fitch continues to track Bloomberg LQA scores through the conflict cycle, investors should watch whether the sukuk advantage in Saudi Arabia, Oman and Bahrain persists, whether Qatar and the UAE start to show differentiation, and whether Kuwait’s bond-led profile begins to shift.
Quick answers
According to Fitch Ratings, GCC sukuk recorded an average Bloomberg Liquidity Assessment score of about 57 versus 53 for conventional bonds across all currencies, with the gap widening to 68 versus 57 when only local-currency instruments are measured.
Fitch data show sukuk outperforming conventional bonds on liquidity in Saudi Arabia, Oman and Bahrain, while Qatar and the UAE show identical scores for both instrument types, and Kuwait remains the exception where bonds are more liquid.
Most Fitch-rated sukuk have improved through 2025, with August marking the strongest average since the conflict began, though many instruments remain below January pre-war marks; sukuk from Egypt, Oman, Malaysia and Ireland have all exceeded their pre-war scores, with Egypt rising 11 points above its prior reading.
