I found one of the investment bankers in linkedin and emailed him, he was quoted in one of the Bloomberg articles about KSA's new debt.
Here is how he responded.
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Although Saudi still has very high reserves they cannot rely only on that as there is a risk that reserves could be depleted fast. In addition Saudi currently has very low amounts of debt therefore there is plenty of flexibility to add some new debt for the time being. Keep investing only on US Treasuries is not the safest option as yields are very low and they need to diversify their investment strategy.
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PeakOil is You
Why is Saudi Arabia selling bonds when they have reserves?
Re: Why is Saudi Arabia selling bonds when they have reserve
by misterno » Fri 14 Aug 2015, 10:25:26
Last edited by misterno on Fri 14 Aug 2015, 10:31:55, edited 1 time in total.
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misterno - Tar Sands
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Re: Why is Saudi Arabia selling bonds when they have reserve
by misterno » Fri 14 Aug 2015, 10:31:35
$this->bbcode_second_pass_quote('kublikhan', '')$this->bbcode_second_pass_quote('misterno', 'A')ll SA's reserves are invested in US treasuries
No, It's not just US treasuries. They also keep some of their reserves in cash, some reserves in non dollar assets or currencies, other asset classes(ex: equities), etc. Total oil exporters own less than $300 billion in US treasuries. Even assuming the lion's share of that is Saudi Arabia, that still means less than half of Saudi Arabia's reserves are US Treasuries. $this->bbcode_second_pass_quote('', 'S')audi Arabia's central bank will keep its current strategy for managing the country's foreign reserves. The central bank is believed to have placed over half of that amount in conservative U.S. dollar assets such as U.S. Treasury bonds and bank accounts. "We continue to have a balanced allocation of our assets, whether currencies, geographic and other classes."
Over $100 billion of their reserves is just cash. Over 90% of their reserve drawn down has been withdrawing cash. Less than 10% has been selling investments:
$this->bbcode_second_pass_quote('', 'T')he February data showed the central bank had $540 billion invested in foreign securities, about $2 billion less than in January, and $108 billion of deposits with banks abroad, down $21 billion. That implies the central bank has been focusing on bank deposit withdrawals rather then selling U.S. Treasuries.
A fifth of their portfolio is in non dollar currencies. And of the remaining share that is in dollars, a quarter of it is invested in equities. And of the remaining share that is invested in bonds, not all of it is US treasury bonds. Some of it is higher risk bonds.
$this->bbcode_second_pass_quote('', 'r')ecent estimates suggest that roughly 25% of [Saudi Arabia's] portfolio has been invested in equities.
Portfolio composition
We have also tried to estimate the portfolio composition of the funds –both their equity/bond/ alternatives split and their currency composition. Norway provides a rough benchmark for the performance of a conservatively managed fund with a relatively large exposure to euro and pound denominated bonds and the European equity market that can be compared against the Gulf funds, which likely have less euro exposure but more exposure to equities/ alternatives.
Saudi Arabian Monetary Agency non dollar share of assets: 20%
Bonds still dominate SAMA’s[Saudi Arabian Monetary Agency] portfolio but as much as 25% might be in equities. SAMA also has higher risk bonds than that of a traditional central bank portfolio.
If I was just to make some ballpark guesses on the composition of that $680 billion, it might look something like this:
$265 billion in US bonds(mostly treasuries)
$170 billion in equities
$135 billion in non dollar assets
$110 billion in cash
Sorry to respond late on this one
In many articles I have been reading, SAMA's top guy was officially quoted that they don't want the reserve to be actively managed like Norway's. Yet the link you provided shows otherwise. It shows equities and non dollar assets which bear risk of all kinds. So there is conflicting information here. When it comes to Middle East who knows what is right or wrong?
Whoever has been to middle east, lived there worked there will understand what I am saying. outcast_searcher I think the above info is what we have been looking for.
The last time I checked SAMA's website, after a quick search, I was not able to see the composition of their investments or it is there but I did not see it.
People in oil and gas business should understand, Saudi Arabia's finances is the single most important factor in oil prices. Yes there is shale oil and yes Iraq and Iran has so much oil etc etc
But at the end for now, Saudis are the most influential in oil markets. What they say and what they do can alter the market in a second. They have most swing capacity after all. They are a long time ally of USA, and seems like these 2 beasts keep supporting each other in international politics and finance whether this is publicized in the media or not but people knows.
So if SA's reserves keep dwindling, they can take measures that can shock currency/commodity/bond markets very quickly.
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misterno - Tar Sands
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