The Saudi government, which doesn’t have any outstanding international bonds, said it will choose from options including selling local and international debt and drawing from its reserves to finance an expected 2016 budget deficit of 326 billion riyals ($87 billion).
Proxy Debt
The bonds of state-controlled Saudi Electricity Co., used as a proxy for the government in the absence of any international sovereign debt, have tumbled as oil has retreated. The yield on the company’s $1.5 billion securities due April 2024 has surged 49 basis points since the start of the year to a record 4.6 percent on Monday. The extra yield investors demand to buy the debt instead of U.S. Treasuries of similar maturity rose to an all-time high.
Yield spread between Saudi Electricity’s bonds and U.S. Treasuries widened to a record.
“Rising spreads may have an impact on whether or not they come to the market,” Simond said.