The third
auction of UAE treasury bonds in dirhams was 5.1 times oversubscribed and
generated bids totalling AED 7.6 billion. The auction is a component of the
UAE's 9 billion AED plans for T-bond issuance in 2022.
The
Ministry of Finance (MoF) reports that a total of AED 1.5 billion in two tranches
of two and three-year notes, each worth AED 750 million, were issued in the
third auction.
According
to the ministry, "the success is evident in the excellent market-driven
prices, which was reached by a spread of a 16 basis points (bps) over US Treasuries
for two years, and a 15 bps over US Treasuries for three years.
The last
month for which data is available in June, which marked the conclusion of the
protracted period of constraint. According to Treasury Department data, Saudi
Arabia upped its stockpile by $4.5 billion, the largest since August 2020, to a
little over $119 billion. It's still very close to its lowest point since 2017.
Adding
$1.6 billion was the neighbouring UAE, whose holdings have decreased by more
than a third since June 2021. On data dating back to 1977, international
investors made the most purchases throughout the January through June
timeframe.
The desire
for dollar assets will only grow during an inflationary environment, according
to Karen Young, a senior research scientist at Columbia University.
Until now,
the Gulf oil producers' decision to forego investing in what has historically
been the safest and most liquid asset was a sign of a new strategy. Despite
having a surplus of cash on hand, governments in the region are increasingly
seeking to increase the returns on their deposits, reduce their debt, and
diversify their economies away from the energy sector.
In a
departure from previous boom times, Saudi authorities stated earlier this year
that the kingdom planned to keep billions of dollars from its oil income in a
government current account until the end of 2022 and then determine how to
disperse the money.
Any shift
in sentiment toward Treasury securities would signal a welcome resurgence in
interest in US debt following a period of erratic movements and amid worries
that the Federal Reserve's interest-rate increases could trigger a recession.
On Tuesday, Treasuries decreased in value across the board as worries about a
US economic slowdown grew.
According
to a document from one of the banks on the sale, which is anticipated to price
later on Thursday, the bonds, for which demand exceeded $13.5 billion, would
offer investors 100 basis points (bps) over U.S. Treasuries (UST) for the
10-year paper and 175 bps over UST for the Formosa notes.
The
T-Bonds initiative will help shape the yield curve for bonds denominated in UAE
dirhams, offer investors secure investment options, bolster the local debt
capital market, improve the investment climate, and support sustainable economic
growth.
The
Ministry of Finance (MoF) is the issuer in the auction, while the Central Bank
of the UAE (CBUAE) is acting as the issuing and payment agent.
Fixed-income
investment securities known as T-Bonds are available for subscription to
investors.
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