Markets

Saudi US treasuries holdings hit two-year high

January 22, 2024, 1:25 PM

US treasury secretary Janet Yellen. The department issues the treasury instruments that are seen as low-risk investment opportunities

$128bn holdings in November
Yields at 16-year high
Fed held interest rates

Saudi holdings of US treasuries surged to a two-year high of $128.1 billion in November from a six-year low of $108.7 billion in June, according to newly released data from the US Department of the Treasury.

Treasuries are government debt instruments issued by the Treasury and auctioned by the US Federal Reserve, and are considered very low-risk investments.

The yield on the benchmark 10-year US treasury hit 5 percent in October, its highest level since 2007, fuelled by high US Federal Reserve interest rates that aimed to bring down inflation.

The Fed kept the benchmark overnight borrowing rate in a targeted range of 5.25 to 5.5 percent for a third month in a row in December, but cuts are expected this year.

Yields on US treasuries have now fallen back to around 4 percent, which may have a knock-on effect on policy in Saudi Arabia and other GCC states.

The Saudi central bank Sama had previously reduced holdings during the first half of 2023 as the government moved more of its wealth into riskier assets amid a slump in economic growth caused by oil output cuts aimed at propping up oil prices.

“I suspect that Sama is taking advantage of the high yields on US Treasuries,” said James Reeve of Jadwa Investments.

“It’s a rebalancing away from cash since cash holdings fell during that period.”

Sama’s cash holdings in foreign currencies and gold fell gradually from a year-high of SAR265.08 billion ($70.69 billion) in June to 256.9 billion in November.

Saudi holdings in US Treasuries have become less significant since it revamped its Public Investment Fund as a strategically aggressive sovereign wealth fund as part of its economic diversification strategy launched in 2016.

The PIF was the top spender worldwide among state-owned investors in 2023, deploying $31.5 billion across 48 deals, according to consultancy Global SWF.

The PIF also made the three largest investments by sovereign funds in 2023 – a $4.9 billion acquisition of the US gaming company Scopely, a $3.6 billion purchase of Standard Chartered’s aircraft leasing division and a deal to buy the steelmaker Hadeed for $3.3 billion from the state-controlled Sabic.

The top holders of US Treasuries are Japan at $1,127.5 billion, China and the United Kingdom, with Saudi Arabia among a cluster of countries further down the list.