Wednesday, October 19, 2016


The Saudis, today, just closed the books on the largest emerging market bond deal ever; $17.5 billion dollars dwarfing the Argentine issue of earlier this year of which we spoke.  While I don't have all the details, it appears that the transaction is in three tranches, 5,10 and 30 years and priced at at spread to comparative U.S. debt for the same maturities.  Indicated coupons are 1.35% above the 5, 1.65% above the 10 and 2.10% above the 30.  As the ten closed today to yield 1.73%, if issued today you could be the proud investor in the Kingdom of Saudi Arabia at a return of 3.38% for the next ten years.

Now not having a dog in the fight I shall not comment as to what my views of the credit may be except to say that the Saudis are in a fight with just about everybody these days to include the Syrians, certain Yemenis and of course the Iranians.  Funnily enough, they seem to be getting along just fine with the Israelis ("enemy of my enemy is my friend?) which in that part of the world is not a bad friend to have because nobody is prepared to mess with the Israelis.  Nevertheless , that's a lot of fights in which they find themselves but despite all of that it appears that the overscription was about four times the size of the issue.

The underwriters were an interesting group: J.P. Morgan, Citigroup and HKSB...not a Euro among them which may well be the real juicy tale at the end of the day.  The boys certainly made a bomb; at this level of interest, allotments will be real prizes with undoubted opportunities to be expected down the road.  Did the Saudis pay up?  I would say yes, but this of course must be balanced against the absolute necessity for the issue to be a rousing success which it appears to be and also because of the fact that they need the money.  Fighting wars is an expensive operation especially when your citizens have become used to a lifelong gravy train from the vast oil resources of the nation which have run afoul of the good ol' US of A and fracking.  Mr. Putin who is also into this war thing is in a much better spot; 97% of the Russian people have never had bupkus and still don't.  No bread?  Give them circuses or better yet, a nice little war where not a lot of your people get hurt.  Smart little nutter our boy, Val.   So hats off to the Lead Managers: they got their deal, the buyers have their yield and everybody has a big pay day.  Now all that has to happen is that they pay it back.


It was announced today that one trader at Goldman Sachs has made $100,000,000 in junk corporate bonds in this year alone.  As the story goes, this Master of the Universe bought multiple billions of dollars of bonds from clients earlier this year when prices were in the tank and the clients were desperate to get rid of them.  Why?  Well, in the good old tradition of bond houses he was "making markets" for his clients.  How did he make $100,000,000?  Well, he sold them at a higher price, silly.

You might remember that Dodd/Frank prohibited institutions such as Goldie from engaging in "Proprietary Trading," but Goldie assures us that this was not that.  It was just one of those wonderful moments when every investor in the world came to Goldie to unload their junk bonds and as a public spirited house what could Goldie do but make a market for the poor dears.  For the believers of that call them up...they have a bridge to sell you.   More on this later in the week but it appears that Goldman Sachs and the Clintons have more in common than we thought.

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