The cost of insuring against a Saudi Arabian sovereign debt default has dropped sharply in the past few days because of the rebound of global oil prices, market data showed on Sunday.

Last Monday, five-year Saudi credit default swaps soared as high as 120 basis points, from around 60 bps late last month.

At their high, CDS implied the world's top oil exporting country had a probability of default during the next five years of close to 10 per cent, roughly the same as the Philippines - a dramatic sign of how the plunge of oil prices since mid-2014 has eroded investor confidence in the Saudi economic model.

But in the last few days, oil prices have rebounded sharply and Brent, the global benchmark, finished Friday up $2.49 or 5 per cent at $50.05 a barrel. It gained 10 per cent on the week.

This has left Saudi CDS quoted at 84 bps - about 30 bps below the Philippines' current level and 14 bps below Spain . Saudi Arabia has not, however, returned all the way to the area of South Korea, at 65 bps.

With oil prices at $50, Saudi Arabia is still running a state budget deficit estimated by analysts at around 15-20 per cent of gross domestic product, but it has huge fiscal reserves which could cover such a deficit for at least several years.

Saudi stock prices surged 4.2 per cent early on Sunday in response to oil's rebound, bringing them 15 per cent above last week's low but still down 13 per cent month-to-date.

 One-year US dollar/Saudi riyal forwards have not dropped sharply, however, and were last quoted at 300 points, not far from last week's 12-year highs - suggesting there is still significant demand to hedge against the risk of riyal depreciation due to low oil prices. – Reuters