Depository Trust & Clearing Corp. data. While that’s less than half the bonds insured from the United Arab Emirates, it’s a leap for a nation whose debt-to-gross domestic product rose to almost 7 percent last year from less than 2 percent in 2014, according to the International Monetary Fund.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. They’re used to hedge against losses or speculate on creditworthiness.
More Risks
With the kingdom’s finances strained and tension escalating between mainly-Sunni Saudi Arabia and Shiite-dominated Iran, Barclays Plc sees five-year default swaps rising a further 50 to 100 basis points, according to an e-mailed report on Wednesday. Protesters in the country’s eastern region, home to the majority of both its Shiite minority and its oil, clashed with police following the government’s execution of a prominent shiite cleric this month.
Rising Saudi credit-default swaps reflect "investors’ fears of more Sunni-Shiite tensions in Eastern Province and intensification of fighting in Yemen in the coming months," said Sergey Dergachev, a senior money manager who helps oversee about $13 billion at Union Investment Privatfonds GmbH in Frankfurt. "Assuming low oil prices as they are now, there is a substantial chance that Saudi Arabia will issue its first dollar-denominated bonds. Current levels of let’s say 4-percent for a 10-year bond are attractive, for both issuer and investors."