Dubai: Saudi Arabia’s Credit Default Swap (CDS) or cost of insuring risk tightened on lower pricing of the mega $17.5 billion (Dh64.22 billion) bond issue.
The 5-year CDS tightened on 136 basis points on Thursday compared to 143 basis points in the previous session, while the 3-year CDS fell to 85 basis points compared to 96 basis points in the previous session.
“The fall in CDS levels could be attributed to the following factors: Oil holding steady above 50 and talks circulating of production cuts, Saudi’s debt issuance and their ability to come in at fairly tight levels thus highlighting the strong demand for Saudi debt, and the recent news by the Saudi Finance Minister saying that payments to Saudi construction firms are set to increase,” said Chandru Bhatia, portfolio manager at Rasmala.
Saudi Arabia conducted the largest-ever emerging market bond sale on Wednesday, selling $17.5 billion of debt in the government’s first international offer while attracting investor orders totalling almost four times that amount.
Saudi initial issuance guidance levels for 5-year bond was tightened by 25 basis points to be at 160 basis points over US treasury, 10-year pricing came in at 165 basis points compared to the earlier 185 basis points over US treasury, while 30-year bond was priced at 210 basis points over US treasuries compared to 235 basis points earlier. Bond yields in the secondary market also compressed by 10-20 basis points, traders said.
Analysts said traders were generally cautious ahead of the mega bond issue, which created a record in the emerging markets, and were defensive in the last couple of weeks, but sentiment was boosted by lower pricing.
Elsewhere in the region, Abu Dhabi’s 5-year CDS tightened by 2 basis points to be at 67 basis points, while Dubai 5-year CDS also fell by 4 basis points to be at 154 basis points, and Qatar 5-year CDS also fell 3 basis points to be at 87 basis points.
Grey market:
Saudi Arabia’s international bond issue saw heavy grey market trading early on Thursday with the prices of all three tranches rising from the reoffer price, Reuters reported.
Several said the premium to the reoffer price averaged more than 50 cents. Two said the five-year tranche was trading with a 50 cents premium and the 10-year tranche at about 40 cents over, while one said the 30-year tranche had gone as high as about 150 cents.
A $5.5 billion five-year tranche was launched at 135 basis points over US Treasuries, a $5.5 billion 10-year tranche at 165 bps over, and a $6.5 billion 30-year tranche at 210 bps over.
