Saudi Arabia: A Corruption Crackdown Presents a Buying Opportunity
The recent power struggle in Saudi Arabia triggered a bond sell-off in the Kingdom’s sovereign bonds. We believe that the sell-off has been overdone, and that investors should use the current uncertainty to buy Saudi USD government debt which offers good value relative to peers. The YTM of this Saudi 5Y note has decreased by 21bps since the height of the crisis in early November. The spread vs the US 5Y Treasury has now increased by 9bps since the beginning of the crisis. At the height of the crisis, the spread vs the US 5Y Treasury had increased by 25bps. The Kingdom’s debt and equity markets have declined over the last 2 weeks, and crude oil futures have rallied as a result of the uncertainty created by the power struggle.