Oct. 26 (Bloomberg) -- Islamic bonds are poised for record gains amid confidence that Nakheel pJSC, the developer of palm- tree shaped islands off the Dubai coast and the market’s biggest issuer, will avoid default.

“Nakheel is the flagship,” said Yannick Lopez, who helps oversee paris-based OFI Asset Management’s $30 billion in assets. “A default by Nakheel could have wider implications” on the Islamic bond market, he said. “Our view is that the probability of default on this name is quite low.”

Almost non-existent a decade ago, the market has grown to $130 billion, according to Moody’s Investors Service. prices are rebounding after three defaults in the past year because investors expect Dubai’s government to prevent state-owned developer Nakheel from failing to make payments on its obligations. The company’s bonds due Dec. 14 rose to a record 108 cents on the dollar this month, up from 93.5 on Sept. 2 and 70 percent higher than a February low.

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