The recovery in oil prices has increased investors’ appetite for Saudi Arabian government debt abroad, allowing the kingdom to borrow at negative interest rates for the first time.
The kingdom raised € 1.5 billion, equivalent to $ 1.8 billion, through a bond sale on Wednesday. Yields were minus 0.057% for three-year debt and 0.646% for nine years, the cheapest borrowing costs it has achieved to date. It was the second time that it issued bonds in euros.
One of the most oil dependent countries in the world, Saudi Arabia has regularly accessed international bond markets since 2016 to balance its budget amid fluctuations in oil prices. Its economy contracted 3.9% last year, when the coronavirus pandemic hit global energy demand, according to estimates from the International Monetary Fund, leaving it with a budget deficit of 12% in economic output in December.
The government has come up with a plan to cut that deficit in half, cutting spending this year. The decision to issue in euros is probably part of that, analysts said.
The euro zone has had a negative interest rate since 2014, which serves as a benchmark for sovereign and corporate debt, reducing the overall cost of borrowing in euros. Governments and companies around the world often turn to Europe’s bond market to access cheaper funds. China was able to borrow at negative rates for the first time last year in a three-part euro-denominated debt sale.