Trading conditions have improved across much of the Islamic debt market since March, led by sovereign and investment-grade instruments, but liquidity remains below pre-conflict levels.
DUBAI — June 13, 2026: Liquidity in the global sukuk market is beginning to recover after deteriorating sharply during the opening months of the regional conflict, although geopolitical uncertainty continues to restrict trading activity and investor confidence.
Fitch Ratings said the liquidity of most sukuk covered by its analysis had improved by early June when compared with conditions recorded in March.
Around 72% of Fitch-rated sukuk carried a liquidity score above 50 as of June 9, up from 64% on March 23. The proportion nevertheless remained below the 81% recorded in January, before the conflict materially altered market sentiment. [1]
Investment-grade sukuk maintained the strongest position. Their average liquidity score increased to 66 in June from 64 in March, but remained below January’s level of 72.
Speculative-grade sukuk also recorded an improvement, rising to an average score of 41 from 33 in March. That recovery was more pronounced in certain lower-rated instruments, particularly sukuk in the “B” category, although the speculative-grade average remained below the January level of 48.
The figures point to stabilisation rather than complete normalisation.
Investors are returning to selected securities, market makers are becoming more willing to provide prices and stronger issuers are finding buyers. However, the market has not fully regained the depth or consistency seen before the regional shock.
What sukuk liquidity means
Liquidity measures how easily an investor can buy or sell a security without causing a substantial movement in its price.
A highly liquid sukuk can generally be traded quickly, with a relatively narrow difference between the price a buyer is willing to pay and the price a seller is prepared to accept.
A less liquid instrument may still remain financially sound and continue meeting its payment obligations. However, an investor attempting to sell it may face fewer buyers, wider bid-ask spreads or a greater price concession.
Fitch’s analysis uses Bloomberg’s Liquidity Assessment, or LQA, which assigns securities a score between one and 100. A higher score indicates stronger security-level liquidity and lower estimated trading costs.
The measure should not be confused with a credit rating.
A credit rating assesses the issuer’s ability and willingness to meet its financial obligations. A liquidity score focuses on the ease with which the instrument can be traded in the secondary market.
A highly rated security can temporarily become less liquid during periods of market stress. Similarly, a lower-rated instrument can experience improving liquidity when investor demand returns.
The distinction is especially important in the current environment. Fitch’s findings suggest that trading conditions have strengthened even though geopolitical risks have not disappeared.
Investment-grade securities recover first
The clearest improvement has been visible among investment-grade sukuk issued by governments, supranational institutions and financially strong companies.
These instruments generally benefit from larger issue sizes, established investor bases and more frequent trading. Sovereign and quasi-sovereign issuers may also carry an expectation of strong institutional or government support.
When uncertainty rises, investors often move towards securities they regard as easier to value and easier to resell.
That behaviour helps explain why investment-grade sukuk retained an average liquidity score considerably higher than speculative-grade instruments.
Sovereign sukuk drove much of the improvement recorded by Fitch. Asset-backed, supranational and sovereign instruments also maintained some of the highest liquidity levels by sector.
For institutional investors, benchmark sovereign securities often function as an entry point into a country or currency. They can also provide reference pricing for corporate and bank issuers seeking to enter the market.
A recovery led by sovereign instruments can therefore support the broader market. However, it does not guarantee that smaller, lower-rated or longer-duration transactions will experience the same improvement.
Lower-rated issuers continue to face pressure
The difference between investment-grade and speculative-grade liquidity remains substantial.
Lower-rated securities suffered a sharper deterioration when risk appetite weakened because investors demanded greater compensation for credit uncertainty, geopolitical exposure and reduced market depth.
Although the speculative-grade average improved to 41 in June, it remained well below the investment-grade score of 66.
This gap has practical implications for issuers.
A company with a weaker rating may need to offer a higher return to attract investors, accept a smaller transaction size or postpone issuance until conditions improve. Existing securities may also trade less frequently and at wider spreads.
The recovery within the “B” rating category is encouraging because it suggests that investors have not abandoned higher-yielding sukuk entirely.
Nevertheless, selective buying does not amount to a broad reopening of the riskier end of the market. Investors are likely to continue examining individual balance sheets, refinancing needs, sector exposure and access to government or shareholder support.
Geography shapes the recovery
Liquidity conditions differ significantly across countries and financial centres.
According to the analysis, sukuk from Hong Kong, Malaysia, Indonesia, Qatar, Kuwait and Saudi Arabia, along with supranational issuers, maintained some of the highest average liquidity levels.
Malaysia remained particularly strong.
The country represents roughly 60% of the global sukuk market by outstanding volume, supported by a large domestic investor base, developed Islamic financial institutions and an active local-currency market. Malaysian sukuk recorded an average liquidity score above 85.
Saudi Arabia also displayed considerable market depth. More than half of Saudi sukuk by volume carried scores within the 70-to-90 range.
In Qatar, approximately 92% of sukuk volume achieved scores above 50, while almost 30% was concentrated between 70 and 75.
These figures demonstrate that the global sukuk market cannot be assessed as a single uniform asset class.
Domestic savings, the strength of Islamic banks, local pension and insurance demand, currency denomination, sovereign credit quality and the scale of issuance all affect liquidity.
Markets with deep domestic demand may be better insulated from fluctuations in international capital flows. Markets that depend more heavily on overseas investors or speculative-grade borrowers may experience greater volatility.
Currency markets produce different outcomes
Currency denomination has also played an important role.
Malaysian ringgit-denominated sukuk maintained the highest liquidity in June, reflecting the scale and depth of Malaysia’s domestic market.
Euro-denominated sukuk also recorded high liquidity, followed by instruments denominated in UAE dirhams.
US dollar sukuk, which account for most of Fitch’s rated sukuk universe, remained below their January liquidity levels.
The difference matters because dollar-denominated issuance forms the principal connection between Gulf borrowers and global fixed-income investors.
Dollar sukuk allow sovereigns, banks and companies to raise large amounts of international capital. They also expose issuers and investors to changes in US interest rates, Treasury yields, global risk sentiment and the willingness of international market makers to hold regional securities.
When geopolitical uncertainty rises, dollar instruments can be affected quickly as global funds reduce emerging-market exposure or demand larger risk premiums.
Local-currency sukuk may be supported by domestic banks and institutional investors whose liabilities are denominated in the same currency and whose investment strategies are less sensitive to short-term international flows.
Geopolitical risk remains the central constraint
The sukuk market’s incomplete recovery reflects a risk that cannot be resolved by credit fundamentals alone.
The regional conflict has affected investor perceptions of energy security, shipping routes, fiscal performance and the operating environment of Gulf-based issuers.
Even financially strong companies can experience wider trading spreads when their home market is associated with military escalation or disruption to transport and commerce.
Investors may also reduce exposure because of uncertainty rather than an immediate expectation of default.
This distinction helps explain why market liquidity can deteriorate faster than underlying credit quality.
A sukuk issuer may continue generating revenue, maintaining cash reserves and meeting every payment. Yet investors may still become less willing to trade its securities if they are uncertain about the wider region.
Fitch has said liquidity improvements are not uniform and vary according to ratings, countries, sectors, currencies and sensitivity to geopolitical risk.
This means the path towards normalisation will depend partly on developments outside the control of issuers.
Visible de-escalation, more predictable energy markets and the normal functioning of regional shipping and aviation routes would help reduce the additional premium investors demand for holding Gulf and Middle Eastern securities.
The primary market will provide the next test
Secondary-market liquidity is only one measure of confidence.
The next major test will be whether governments and companies can issue new sukuk at acceptable prices and attract strong, diversified order books.
A functioning primary market provides investors with new benchmark securities and helps price existing instruments. Successful transactions can also encourage issuers that had postponed financing plans to return.
However, issuance alone will not prove that conditions have normalised.
The quality of investor demand will matter. A transaction supported by a broad group of international funds, regional banks and long-term institutions sends a stronger signal than one dependent on a narrow group of buyers.
Pricing will also be important.
If issuers must offer unusually large concessions to complete transactions, the market may technically remain open while still reflecting considerable stress.
Longer-duration and lower-rated sukuk are likely to face the most difficult conditions because investors must accept both greater credit exposure and greater uncertainty over the future interest-rate and geopolitical environment.
Refinancing risks remain manageable but uneven
Gulf governments, banks and companies have significant funding requirements connected to infrastructure, economic diversification and the refinancing of existing debt.
Many large issuers plan transactions well in advance and maintain access to bank financing, local-currency markets or government-linked liquidity.
These alternatives can reduce the pressure to enter international markets during an unfavourable period.
The position is more complicated for smaller companies or issuers with concentrated maturity schedules.
A borrower approaching a large repayment may have limited flexibility if global investors remain cautious. It may need to refinance at a higher cost, rely more heavily on bank lending or seek support from shareholders.
Liquidity in an issuer’s existing sukuk can therefore influence future funding costs.
When secondary-market trading becomes thinner and yields rise, new investors may demand a larger return before participating in the issuer’s next transaction.
Structural demand supports the market
Despite the present risks, the sukuk market retains several structural strengths.
Islamic banks, takaful companies, sovereign funds and Sharia-compliant asset managers require suitable instruments in which to invest. This creates a natural pool of demand that can remain active even when some international investors withdraw.
The market is also predominantly investment grade within Fitch’s rated universe.
By the first half of 2025, Fitch-rated sukuk had surpassed $210 billion, with approximately 80% carrying investment-grade ratings. Sovereign and supranational issuers accounted for more than half of the rated market, while financial institutions and companies were expanding their participation. [2]
These characteristics support liquidity because large, highly rated and frequently issued securities tend to attract broader investor interest.
The continued development of domestic savings products also widens participation. Saudi Arabia’s government-backed Sah savings sukuk, for example, offered an annual return of 4.60% for its June 2026 issuance, demonstrating the Kingdom’s effort to encourage household savings through Sharia-compliant government instruments. [3]
Retail savings products do not directly solve liquidity challenges in international dollar sukuk. They nevertheless deepen the broader Islamic capital-market ecosystem.
Recovery will depend on politics as well as credit
The latest data show that sukuk liquidity is moving in the right direction.
More securities now carry liquidity scores above 50, investment-grade instruments are trading more actively and speculative-grade sukuk have recovered part of the decline recorded in March.
Yet the market remains below its January position.
The remaining gap reflects more than uncertainty about individual issuers. It represents the additional compensation investors require for regional risk, market volatility and the possibility of renewed disruption.
For high-quality sovereign and quasi-sovereign issuers, market access is likely to remain comparatively resilient. Lower-rated companies, long-duration instruments and borrowers with immediate refinancing needs will face a more demanding environment.
A complete recovery will require a combination of stable credit fundamentals, successful new issuance and a visible reduction in geopolitical tension.
Until then, the sukuk market will continue to function, but with a sharper distinction between securities investors are willing to hold and those they are confident they can trade.
