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Prices of Saudi debt instruments for 30 years have reached record levels, unprecedented for the first time since the government launched these problems in international and domestic markets.
In their quest for yield, emerging market investors pushed Saudi Arabia's bonds to record levels, leaving the last two issuers trading between 112 and 116 cents to the dollar in the last few days, a 12 to 16% increase in value. Nominal "which is in the range of 100 cents per dollar," according to the newspaper "economic".
These historical levels appeared as a natural reaction after investors in "emerging market bonds" noticed how 30-year US Treasury yields had fallen to unprecedented lows, while fears of a slowdown World economic strengthening and the Federal Reserve should accelerate Lower interest rates to cope with the risk of recession.
Sovereign debt instruments of Saudi Arabia are valued using a benchmark index of US Treasury yields, which fall under the sovereign debt instrument pricing system.
However, with US Treasury yields reversing the downtrend, the acquisition of earlier GCC bond issues has become attractive to investors' portfolios because of their higher yields, in line with current market conditions.
The price premium was not limited to the four-year dollar issues of 30-year bonds, but also to the domestic market, where the only 30-year Sukuk issue followed its counterparty of the same term bonds and became the debt security. most expensive government in terms of market value.
The issue closed at 1101 riyals, "up 10 percent from the par value of 1,000 riyals," according to the closing on Thursday.
The level of debt instruments at 30 years old in the secondary market comes at a time when the region is experiencing geopolitical events that have not prevented bond investors from paying such an exorbitant premium to acquire a small share. sovereign debt of the major Middle East economies, which combine a high rating. And strong economic fundamentals.
Performance Research
In an analysis released Aug. 7, Al-Eqtisadiah highlighted an increase in secondary market demand for older CCG issues issued by governments last year, as yields on these bonds are now attractive and " fixed income instruments "emerging markets entering the growth phase. Low interest.
The paper pointed out that there was an inverse relationship between the high prices of these securities and the low yield.
Surveillance at the time showed that some of the old investors were still hanging on Saudi debt instruments, because of the generous yield "under current interest rate conditions".
While the face value of negative return bonds exceeds $ 13 trillion, investors in the fixed income markets are beginning to be interested in emerging market bonds with positive returns.
Emissions from the Gulf region are billed at a price higher than the fair value that they are expected to meet credit ratings, as emissions from countries in the region carry a lower credit risk, a credit rating higher and higher periodic returns compared to their counterparts in countries with the same rating.
Attractive yield
Last year, Saudi Arabia issued a 30-year, 5% ($ 3.5 billion) bond maturing in 2049 and traded on the secondary market at levels between 112.62 and 113.37. cents per dollar.
The last issue of the 30 bonds took place in January of this year and was worth $ 3.5 billion, a return of 5.25%. This band is trading at levels between 116 and 116.50 cents to the dollar.
The 30-year US Treasury bonds closed at 2.26% last Friday and Saudi Arabia at the 30-year ticket issue at 3.03%, which means that Treasury yields the US collapsed 77 basis points in seven months. Only
The record decline in US Treasury yields is due to the trade dispute between China and the United States, which has had a positive impact on sovereign bond yields in the Gulf region.
The quality of investors exposed to Saudi debt is divided into two types: long-term investors and those who simply wish to buy and sell for quick wins.
Solid economic fundamentals
What distinguishes the old versions of the government of the Kingdom that arrived earlier this year and last year is that they were closed with a "fixed" interest, which will not refuse periodic payments to investors even if the holders of these securities for the period of low interest.
It is natural that the international investor, who is willing to pay a premium on debt securities at age 30, will decide on the strength of the Kingdom's economy and the "Vision 2030" as well as on the ongoing reforms, as the portfolios that buy these securities will only recover "invested capital" after 2046 and above "if maintained until it is extinguished".
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