Bahrain bond yields edge up on report of aid request, no panic selling

Yields on Bahrain's international bonds inched up after a report that the kingdom was seeking financial aid from its Gulf allies.


DUBAI - Yields on Bahrain's international bonds inched up after a report that the kingdom was seeking financial aid from its Gulf allies but traders said there was no panic in the market, suggesting investors believe Manama can count on help from other states.

Quoting unnamed sources, Bloomberg reported late on Wednesday that Bahrain had asked Saudi Arabia, the United Arab Emirates and possibly Kuwait for money to replenish its foreign exchange reserves and avert a currency devaluation. No agreement has been reached, it said.

Spokesmen for Bahrain's government and central bank did not respond to requests for comment on Thursday while a senior finance ministry official could not be reached.

Bahrain has long been seen as the weakest of the six wealthy Gulf Arab oil-exporting states because its oil and financial reserves are much smaller than its neighbours'. All three major credit rating agencies assess Bahraini debt as "junk" and the International Monetary Fund says Manama "urgently" needs to raise revenues and control spending to stabilise its finances.

But Bahrain is a close political ally of Saudi Arabia so many investors think Manama could count on aid from Riyadh in a crisis, greatly reducing the risk involved in buying its debt.

The yield on Bahrain's $975 million government bond maturing in January 2021 was at 4.33 percent on Thursday, up from 4.26 percent at the end of Tuesday. A month ago, the yield stood at 4.51 percent.

Five-year credit default swaps , used to insure against any debt default by Bahrain, were at 247 points, up from 236 points on Tuesday but far below peaks of 390 points hit last year, when concern about the impact of low oil prices on Bahrain's economy was at its height.

A Bahraini commercial banker said talks about aid would not be surprising and he believed the issue had been discussed among Gulf countries early this year.

Saudi Arabia, the UAE and Kuwait are already helping Bahrain financially. In 2011 they announced a $10 billion programme to fund economic development projects there, and Saudi Arabia has been generous in sharing oil production from a joint field which it owns with Bahrain.

The Bahraini banker said that if Bahrain was asking for additional financial aid, that might be interpreted as good news because it suggested the government was being proactive about its financial squeeze.

Because of investors' belief in Saudi support, Bahrain has kept its access to the international debt market. In September, a $3 billion bond issue by drew heavy investor demand.

Bahrain's central bank governor Rasheed Mohammed al-Maraj said last week that the kingdom remained committed to its currency peg to the U.S. dollar. Data released on Thursday showed net foreign assets at the central bank jumped to 1.30 billion dinars ($3.44 billion) in September from 522 million dinars in August, apparently because of proceeds from the international bond issue.

(Editing by Andrew Torchia and Catherine Evans) ((; +971522604297; Reuters Messaging:

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