Saudi Arabia Said to Price Local Bond Issue Amid Tightening

Saudi Arabia priced its latest monthly debt auction as the country looks to raise money to fund a budget deficit, according to two people with knowledge of the matter.

The kingdom sold an unspecified amount of five-, seven- and 10-year floating rate notes at the top end of the pricing guidance it set last week, said the people, who asked not to be identified because the information isn’t public. The country also sold fixed-rate debt, which was priced at the middle-to-lower end of the guidance, they said.

So far the government has funded its deficit by drawing down savings and tapping local banks through monthly debt sales. It raised 98 billion riyals ($26 billion) from selling bonds to local institutions last year and will probably sell about 120 billion riyals of debt in 2016, Saudi Fransi Capital said in October. The debt sales are contributing to tightening liquidity at the banks, reflected in the three-month Saudi Interbank Offered Rate, a benchmark used to price loans, which climbed to the highest in seven years this month.

The riyal-denominated five-year floating notes were priced at 25 basis points less than the three-month Saudi Interbank Offered Rate, compared with an indicated range of 30 to 25 basis points less. The seven-year notes yielded 10 basis points less than three-month Saibor, while the 10-year notes were priced five basis points above the interbank rate.

Fixed rate notes were priced at 1.9 percent, 2.35 percent and 2.72 percent for the five, seven and 10 year notes respectively.

The Saudi Arabian Monetary Agency didn’t immediately respond to calls and an e-mail seeking comment.

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