RIYADH – The Saudi Ministry of Finance issued government development bonds worth SR20 billion. These bonds were allocated for a number of public corporations and local commercial banks. The periods of the bonds ranged between 5 and 17 years, as follows: five years with 1.92 percent rate of returns; seven years with 2.34 percent rate of returns; and 10 years with 2.65 percent rate of returns. The Ministry of Finance had issued government development bonds worth SR15 billion in a special issue for public corporations last June. The ministry is also expected to issue more bonds with different periods and magnitudes during the coming periods based on financing needs. Bankers expect it to sell many more bonds - perhaps 20 billion riyals a month - by the end of this year and possibly next year to cover the deficit created by cheap oil, which analysts estimate could total $130-150 billion this year. The Saudi Arabian riyal fell to its lowest forwards market level against the USdollar in over six years on Tuesday as a rare bond issue by the Saudi government tightened liquidity in the kingdom's money markets. One-year dollar/riyal forwards climbed as high as 144 points, their highest level since December 2008. Previously this year, they had been trading almost entirely in a range of zero to 100 points. Traders said forwards were moving in response to a jump of longer-term Saudi riyal money rates, after the government sold riyal bonds to local commercial banks this week to help cover a huge budget deficit caused by low oil prices. The bond issue pushed the cost of two-year riyal funds in the interbank market up to 1.53 percent this week from as low as 1.05 percent six weeks ago. The government sold SR20 billion ($5.3 billion) of five-, seven- and 10-year bonds, only its second sovereign bond issue since 2007. Its first was in July, to quasi-sovereign institutions. This prospect has created concern about a substantial tightening of liquidity in the banking system over coming months, as the government debt absorbs funds. But concern about Saudi Arabia's ability to repay its debt does not appear to have increased. Five-year Saudi credit default swaps, used to insure against any sovereign default, have risen only marginally in the last few weeks and are well below their levels in 2011 and 2012. — SG/Reuters
