Watch out for Saudi Arabia’s big bond sale this week

Let’s first answer the question –“Why do you need to watch out for the bond sale?”

Reasons are several for example it is the first international bond sale by the government but most importantly it would be a judgment from the investors on Saudi Arabia’s economic health at a time when the country is suffering from lower oil price and weaker economic prospects. Saudi Arabia is likely to slash capital spending by 71 percent. Banks are suffering from lower deposits and thus lending out less. Non-performing assets are on the rise in the balance sheet. A lower oil price has led to the shrinkage of the national GDP by more than 14 percent since 2014 crash.

Despite all these problems, Saudi Arabia has a very low level of national debt; below 10 percent and a first international bond sale by the world’s largest crude oil exporter should definitely attract demand from investors. So what to watch out for would be the spread. Two other major oil producers Qatar and Abu Dhabi were able to sell 10-year bonds at 150 basis points and 125 basis points above equivalent US treasury. So the yield would be a report card on the health of the Saudi economy.