Saudi CDS widen as oil prices rise

Interbank offered rates also edge higher on expectations of a rate hike in the US

Five year Saudi’s credit default swaps (CDS) or cost of insuring risk widened as oil prices neared the keenly watched level yet again ahead of a potential bond issue.

Prices of oil, from which the Gulf countries derive most of their revenues, traded near the $50 (Dh183.50) per barrel mark, after gaining more than 20 per cent since August 18, entering into a bull market.

“The risk is going out because of recovering oil prices, better credit sentiment,” Chandru Bhatia, fund manager, fixed income at Rasmala told Gulf News.

Bhatia said the news of a $10 billion in October was already in the price. Five year Saudi Arabia’s CDS widened to 150 basis points on August 26 on compared to 159 basis points on August 19.

Dubai CDS for the five year period remained almost flat. Dubai CDS remained at 164 basis points, while Abu Dhabi CDS tightened slightly to reach 75 last week, compared to 72 the week before. Qatar CDS was at 93 last week, compared to 96 the week before.

“As long as oil prices remain in a range, we are not going to see much of a market reaction,” said Bhatia. Oil prices have been trading in the range of $40-50 for a few weeks.

Interbank offered rates also edged higher on expectations of a rate hike in the US sooner.

US Federal Reserve chair Janet Yellen said the case to raise interest rates is getting stronger, increasing bets of two rate hikes in 2016.

Saibor or Saudi Arabia Interbank Offered Rate edged higher indicating crimping liquidity. Saibor was expected to be at 2.3 per cent on August 28, compared to 2.23 per cent in July 29. The Emirates Interbank Offered Rate (Eibor) was placed at 1.18 per cent yesterday, compared to 1.17 per cent last week.

The risk is going out because of recovering oil prices, better credit sentiment As long as oil prices remain in a range, we are not going to see much of market reaction.” Chandru Bhatia | Fund manager, fixed income at Rasmala