Saudi Arabia said to introduce floating rate bonds

Saudi Arabia will issue floating rates bonds to encourage local banks to buys its debt as the country looks to plug the budget deficit caused by declining oil prices, a Reuters report said citing unnamed banking sources.

The government has been issuing domestic bonds of SAR 20 billion to banks every month since August 2015.

A part of this month's bond issue, to occur later this month, will for the first time be bonds whose yields move in line with money market rates, the sources said.

“The five-year floating portion is expected to be priced at about three-month Saudi interbank offered rate (Saibor) minus 25-30 basis points (bps) for a five-year tranche, three-month Saibor minus 10-15 bps for a seven-year tranche, and flat to 5 bps over three-month Saibor for a 10-year tranche,” the report said.

The fixed portion is expected to be 50-55 bps over U.S. Treasuries for the five-year tranche, 60-65 bps over for the seven-year tranche, and 70-75 bps over for the 10-year tranche, sources said, adding that the pricing will take place Sunday, followed by allocations on Monday and settlements the following day.