Saudi Devaluation Bets Surge, Stocks Crash As Debt Deal Falters On 9/11 Legislation Anxiety

Despite its peg, Spot Riyal is trading at its weakest in 8 months as turmoil mounts in The Kingdom as a failed 'deal' in Algiers, pay cuts for royalty, and now growing concerns that the US vote/veto on 9/11 Legislation will delay Saudi Arabia's first international bond sale. Forward bets on Saudi currency devaluation are surging and default risk is on the rise again as Bloomberg reports, a Senate vote to override President Barack Obama’s veto could cause some investors to balk at the issue.

The country is planning to sell at least $10 billion of bonds next month, four people said. As Bloomberg adds,

Senate leaders in both parties said Tuesday they expect the vote to succeed, though Congress has yet to override a veto by Obama. Senator Ben Cardin of Maryland, the ranking Democrat on the Foreign Relations Committee, said last week that the Saudi government has warned that enacting the bill would cause a “significant change” in the U.S.-Saudi relationship. Saudi stocks tumbled and the currency weakened the most in four months.

 

Overriding the bill “could dent investor demand in near term,” said Kaan Nazli, who helps oversee $4.8 billion of emerging-market debt at Neuberger Berman Europe Ltd. in The Hague.

 

“It would subject the new bonds to some headline noise but ultimately the U.S.-Saudi relationship is very deep and the thinking would be that this issue would be overcome somehow.”

he Saudi Arabian riyal weakened the most since January...

And one-year forward contracts for the currency (Devaluation bets) headed for the biggest increase since July...

 

Saudi stocks lost the most in the world for a second straight day. The Tadawul All Share Index was the worst performer among more than 90 gauges tracked by Bloomberg, falling 4.5 percent as of 2:11 p.m. in Riyadh to the lowest level in more than eight months (near its lowest sicne 2009)

 

So now we know why Obama was so adamant to veto the bill... The Saudis have a lot to lose... this is not about US blowback.