"The Bahrain government is issuing around $1bn in conventional bonds, the yield is market driven and the maturity is 10 years," a CBB spokeswoman said. "The issue is part of Bahrain's sovereign budget process," she added.

A banking source said the bonds will be a 144a transaction, which is regulated under the US securities commission. The source also said the bond could be issued in March or April.

"Responses from banks for the mandate are due today," the source said.

Bahrain last year had a budget deficit for the first time since at least 2005 as average oil prices remained below its estimated budget break-even of about $70 to $80 per barrel.

Oil revenues account for some 75 per cent of government income.

The country increased in December the legal upper limit for its outstanding fixed-income debt to BD1.9bn ($5.04bn) to allow for higher sovereign debt.