Saudi Arabia Set to Raise $17.5bn in Bond Auction

In what will be the largest ever bond auction by an emerging economy, the Saudi Arabian government is seeking to raise $17.5 billion. The deal will also be the largest dollar-denominated auction of its kind by an emerging country. Demand for Saudi Arabian debt is high, given the country’s stability and high-ranking in the Middle East. The world’s largest oil producer is looking to diversify its income stream, as oil prices continue to underwhelm. The contribution of oil revenue to its GDP is down to two-thirds, from 90 percent before the crisis. The first government bond sale on the open market has attracted investors from across the globe, with a total expected purchase of $67 billion. The expected yield on the 10-year bond is 3.44 percent, well within the accepted investment-grade benchmark. Five-year bonds had a yield of 2.58 percent, though sources revealed the initial plan was for it to give 2.83 percent. The price of 30-year bonds was 4.62 percent.

As oil prices continued their slump, the Saudi government revealed that the budget deficit for 2015 was 15.9 percent of its GDP. The International Monetary Fund (IMF) expects the deficit to go down to 13 percent for 2016. With global interest rates being so low, investors were excited by the above-average price for a rather dependable government bond. Oil prices are up to $51.60 per barrel on the New York Mercantile Exchange, from the thirteen-year low of $27 per barrel in January. Saudi Arabia has been in a tight spot of recent, and it is hoping this and other strategies will help get it back on course. The country borrowed $10 billion from international banks earlier this year, and has setup a sovereign state fund to invest its oil wealth.