Bonds are usually an attractive proposition for all those investors who are looking up for income as well as stability.
In the current scenario where the interest rates are rising, the bonds of the United States are being outperformed by the international bonds.
Though this might seem counterintuitive, when taking into consideration the yields offered by the international bonds are lower than that of the bonds of United States. Some of them are even providing negative yields compared to the bonds of the United States.
The rising yields often lead to a decrease in the prices of the bond which is usually higher than what is to counteract the higher yields. This therefore leads to lowered returns taking into consideration the overall scenario.
Saudi bonds is one such category of international bonds which are suffering from an acute decrease in the prices of oil along with the rage that is on-going because of the murder of Jamal Khashoggi, who was an international journalist and columnist at the Washington Post.
For revenue, Saudi Arabia is highly reliant on oil, which accounts for about 90 percent of the country’s earnings of exports and about 42 percent to GDP.
The prices of oil have declined acutely mostly due to the sanctions imposed by the United States on Iran for oil.
The government of Saudi had played the role of an outrage in the murder of the journalist Khashoggi apparently increased the risk of the United States imposing stern penalties on Saudi Arabia.
Because of these factors there has been a dramatic fall in the yields of the bonds. About $5 billion worth of bonds which were due to 2028 have witnessed a sharp increase in the yield in the last week itself.
These bonds now offer a yield of about 4.6 percent which is higher than that of the bonds of the United States which offer yield of 3 percent.
Source: OilPrice, MalaysiaPost