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The Kingdom of Saudi Arabia issued, for the first time in its history, euro-denominated sovereign bonds in two tranches, one of which with a negative yield, to be the largest negative token issued outside the Union European.
Around 1.5 billion euros were raised thanks to double tranche subscriptions. The first tranche represents one billion euros of three-year bonds with a negative yield of minus 0.06%. The second tranche represents half a billion euros of 9-year bonds with a yield of less than 1%.
It is reported that the Kingdom has received subscription requests worth 5 billion euros, reflecting investor confidence in the strength of the Saudi economy.
With the improvement of the investment climate in Saudi Arabia, the Kingdom affirmed that its entry into the euro market broadens the investor base and diversifies the sources of financing in accordance with Vision 2030.
This is the Kingdom’s second international issue this year, after issuing $ 5 billion in dollar bonds in January.
Negative yield bonds
Negative yield bonds are a debt instrument issued by countries with a strong economic position. Country creditors agree to waive interest in exchange for keeping those bonds.
And investors are accepting negative obligations because of the tendency of central banks to charge banks fees for holding their deposits.
Negative bond investors would lose more if their money kept bank deposits.
Countries issued negative yielding bonds including Portugal, Germany, France, the Netherlands and Japan.
Saudi Arabia joins the list of countries issuing negative yield bonds, as creditors in Europe will pay interest to Saudi Arabia in order to buy its three-year bonds, and the value of negative yield bonds has reached 13 trillion dollars in 2019.
It should be noted that Saudi Arabia is the first Gulf country to issue euro bonds in 2019.
Capital Investments director of asset management Wasim Jumaa said the Kingdom’s euro-denominated bond issuance aims to finance the deficit by finding new sources of liquidity outside the dollar.
He added that there was a fundamental change in the Kingdom’s strategy, which is to create liquidity outside the dollar system, and that it opens the door for investors with high liquidity.
He explained that this trend is also part of the Kingdom’s 2030 strategy, which aims to diversify strategic partners, and that the negative yield on bonds indicates an anticipation of a decline in the Kingdom’s budget deficit in the coming period.
He indicated that this would open an opportunity for other countries of the Gulf Cooperation Council countries to diversify their sources of debt and travel to Europe to issue bonds.
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