The Saudi Arabian government plans to start issuing floating-rate bonds to encourage local banks to buy its debt as it finances a big budget deficit caused by low oil prices, banking sources said on Thursday.
Since last August, the government has been issuing 20 billion riyals ($5.33 billion) of domestic bonds to banks every month to finance the deficit.
This has started to pressure liquidity in the banking system - the three-month Saudi interbank offered rate (Saibor) has climbed to 1.73 percent from 0.77 percent in July.
A portion of this month's bond issue, to occur in late February, will therefore for the first time be bonds whose yields move in line with money market rates, the sources said without specifying how big the floating- and fixed-rate portions would be.
Officials at the Saudi central bank could not be reached to comment.
The five-year floating portion is expected to be priced at about three-month Saibor minus 25-30 basis points for a five-year tranche, three-month Saibor minus 10-15 bps for a seven-year tranche, and flat to 5 bps over three-month Saibor for a 10-year tranche, the sources said.
The fixed portion is expected to be 50-55 bps over U.S. Treasuries for the five-year tranche, 60-65 bps over for the seven-year tranche, and 70-75 bps over for the 10-year tranche.
Pricing will occur on Sunday with allocations on the following day and settlement on Tuesday, the sources said.