Dubai credit default swaps (CDS), the cost to insure sovereign debt default, have declined by 30 per cent in the past four months, data shows.

Dubai CDS were trading around 458 basis points yesterday, according to CMA DataVision's Sov?ereign Risk Monitor, down 29.7 per cent from the 652bps in mid-February.

CDS are benchmarks for protecting debt against default and traders use them to speculate on credit quality. Despite the recent steady decline in the Dubai CDS rate, analysts believe the rate remains high in comparison with some of the other global sovereigns.

"Market pricing of Dubai's sovereign risk does not reflect current fundamentals, and we, therefore, recommend exposure [to Dubai Government debt] either through CDS or government bonds," Ann Wyman, Nomura's Managing Director and Head of Emerging Markets Research, Europe, wrote in a report issued in April.

"Credit quality for the UAE as a whole is very high," the report said. "Indeed, the country's net external position of well in excess of 100 per cent of GDP in aggregate puts it in a category of the world's largest creditors," it added.

In another sign of growing confidence, Nakheel's $750 million (Dh2.75 billion) sukuk maturing in January 2011 has gained $56.50, or 113 per cent, since February 15, and was trading at $106.75 in Dubai yesterday, according to Shuaa Capital prices. The bond has more than tripled in value since making a trough of $35 on December 10, 2009.