A recent spate of Islamic bond issues in the Gulf region is setting up the fledging sector for a strong second half of 2011, as borrowers look to benefit from attractive pricing and improving investor sentiment.

The flurry of activity, including two Gulf sukuk issues in the past week - by Islamic Development Bank (IDB) and Sharjah Islamic Bank (SIB) - and several more in the pipeline, were seen as signs the sukuk market may be embarking on a recovery.

This year was expected to signal a recovery for the Islamic bond market after a liquidity drought in 2010. But political upheaval in the broader region raised concerns the industry could have another slow year.

A lack of globally applied standards and regulations within the industry, as well some high-profile sukuk defaults, also put investors off raising fresh money.

But GCC sukuk yields have narrowed significantly in recent weeks, a sign of returning confidence and demand for regional Islamic paper.

On average, GCC dollar sukuk were yielding 4.55 per cent on May 26 compared with about 6 per cent in March, according to HSBC-Nasdaq Dubai GCC Sukuk index. By comparison, average yield on GCC Conventional Bond index on May 25 was 4.95pc.

IDB raised $750 million from a sukuk sale earlier this month, yielding 2.35pc, and SIB raised $400m at 4.75pc. HSBC Middle East, Bahrain's Al Baraka Bank and Qatar Islamic Bank are all eyeing sukuk sales.

Analysts said the rush of activity shows investors are eyeing opportunities to invest in the Gulf in the midst of political uncertainty in the Middle East and the euro zone debt crisis.

"It was great that IDB came to the market successfully as it provides impetus to the sukuk market in a period of low issuance," said King & Spalding debt capital markets attorney Rizwan Kanji.