DUBAI- Saudi government bonds rallied more than most other Gulf sovereigns on Monday in response to austerity measures announced by the country's finance minister, including a tripling of the value-added tax rate.

Saudi Arabia's 35- and 40-year bonds maturing in 2055 and 2060 gained 1.1 cents to trade at 92.4 cents and 101.4 cents on the dollar respectively, Refinitiv data showed.

The 2055 bonds as well as those due in 2029, 2047 and 2049 reached their strongest levels since March 11.

Under the austerity measures, Saudi Arabia will triple value added tax as well as suspend a cost of living allowance for state workers, part of efforts to bolster government finances hit by low oil prices and a drop in oil demand as measures around the world to curb the coronavirus hit economic activity.

"Saudi Arabia is outperforming. The market is seeing the actions as being supportive of fiscal discipline, even though the impact appears minimal," a fund manager said.

Another fund manager said a strong factor in Monday's rally was a general strengthening in the Gulf's debt markets.

The Gulf's primary debt market has also shown signs of recovery, with Bahrain becoming the first sub-investment grade issuer to tap the public markets last week. 

Sources told Reuters last week that several non-sovereign issuers would tap the markets soon, including Abu Dhabi's state fund Mubadala, which hired banks to arrange investor calls on Monday for a potential bond deal.

(Reporting by Yousef Saba; Editing by Jane Merrimanth) ((Yousef.Saba@thomsonreuters.com; +971562166204))