Egypt Sells Most of Treasury Debt Offered as Yields Climb to Two-Year High
Feb. 7 (Bloomberg) -- Alia Moubayed, a senior economist at Barclays Capital, talks about Egypt's plans to raise 15 billion Egyptian pounds ($2.6 billion) in a bond sale today. Talks between Egypt’s government and opposition parties eased pressure for the immediate departure of President Hosni Mubarak, helping the country’s financial system to return toward normalcy. Moubayed speaks from Beirut with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Feb. 7 (Bloomberg) -- Geoffrey Dennis, emerging-markets strategist with Citigroup Inc., talks about the impact of anti-government protests in Egypt on that nation's economy and financial markets, and other emerging markets. Egypt’s stock exchange, closed for seven days amid protests demanding the ouster of President Hosni Mubarak, said trading will resume Feb. 13. Dennis speaks with Margaret Brennan on Bloomberg Television's "InBusiness." Mort Zuckerman, chairman and chief executive officer of Boston Properties Inc., also speaks. (Source: Bloomberg)
Feb. 7 (Bloomberg) -- Commercial International Bank Egypt SAE Chairman Hisham Ezz Al-Arab discusses the impact of Egypt's political crisis on the banking system. He talks from Cairo with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Feb. 7 (Bloomberg) -- Egypt’s Deputy Central Bank Governor Hisham Ramez, talks about the outlook for today's sale of 15 billion Egyptian pounds ($2.6 billion) in local-currency Treasury bills. Ramez also discusses the liquidity of local banks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
Egypt raised most of the 15 billion Egyptian pounds ($2.5 billion) it sought at a debt auction as local banks stepped in to provide financing in the wake of protests aimed at ending President Hosni Mubarak’s 30-year rule.
The government sold a total 13 billion pounds of bills, paying yields of 10.97 percent on 91-day notes, the highest rate in two years and up 147 basis points, or 1.47 percentage point, from the previous sale on Jan. 27. The yield is down from 14 percent in the aftermath of Lehman Brothers Holdings Inc.’s collapse in September 2008.
“We were expecting yields to be higher but government banks especially National Bank of Egypt helped stabilize the market,” Khalil El Bawab, the head of fixed-income at Cairo- based EFG-Hermes Asset Management, said in a telephone interview. National Bank of Egypt Chairman Tarek Amer said that the bank will continue to buy government t-bills.
The government carried out its first auction since Jan. 27 as talks progressed with opposition leaders even as protests demanding Mubarak’s departure continued. Yields on Egypt’s benchmark dollar bonds declined and credit-default swaps dropped.
The average yield on 182-day bills climbed 86 basis points to 11.5 percent, while the yield on the 273-day bills rose 120 basis points to 11.65 percent.
‘Viewed Positively’
Ahmad Alanani, director of Middle East fixed-income sales in Dubai at Exotix Ltd. who forecast before the sale yields may climb as much as 350 basis points, said after that the central bank succeeded at raising funds at yields below 12 percent, alleviating “some of the pressure on the short end of the curve.”
“All things considered, the auction results can be viewed positively,” said Tarek Elalaily, director of Middle East and North Africa fixed income sales at New York-based Cantor Fitzgerald & Co.
While the government raised most of what it sought, higher borrowing costs and a weakening currency are putting pressure on the government’s efforts to trim the budget deficit.
In an attempt to placate the protesters, Finance Minister Samir Radwan said on Feb. 5 that the government won’t reduce subsidies even if global prices of food and commodities rise. Public spending will be used as a tool to “achieve social justice,” he told a news conference in Cairo.
Double Digits
An increase in public spending may push the budget gap to “double digits” in 2011, compared with 8.1 percent in the fiscal year that ended in June, Standard & Poor’s said last week after lowering the country’s credit ratings a notch to two levels below investment grades. Fitch Ratings and Moody’s Investors Service also cut Egypt’s ratings.
The Ministry of Finance said the auction results underscored the strength of the local financial system.
“Results of the auction shows that the risk premium has abated,” Samy Khallaf, adviser to the finance minister for public debt management, said in an e-mailed statement.
Protests that began Jan. 25 have left about 300 people dead, according to United Nations estimates.
Vice President Omar Suleiman, who met with some opposition leaders yesterday, promised a draft list within a month of changes needed to hold free elections. Protesters remained on the streets of central Cairo, insisting that Mubarak step down before his term ends in September. Banks opened for the first time in more than a week yesterday.
The demonstrations disrupted the government’s financing program as the central bank postponed the sale of 4 billion pounds planned for Jan. 30 after raising 2.5 billion pounds on Jan. 27.
Enough Funds
Local lenders have enough funds to buy all the debt, central bank Deputy Governor Hisham Ramez said in an interview earlier today on Bloomberg Television. “Banks are full of liquidity,” he said.
The pound fell 0.3 percent to 5.953 per dollar, the lowest since January 2005, after sinking 1.3 percent yesterday. The yield on Egypt’s 5.75 percent bond due in April 2020 dropped 39 basis points to 6.21 percent, according to data compiled by Bloomberg.
The cost of insuring Egypt’s debt for five years with credit-default swaps fell 27 basis points to 339, the lowest level on a closing basis since Jan. 25, according to CMA prices for credit default swaps. Egypt’s bourse has been closed since the end of trading on Jan. 27 and will remain shut till Feb. 13.
The pound may slump 20 percent in the “short term,” Credit Agricole CIB said in a report on Feb. 3. The currency’s three-month non-deliverable forwards rose to a record last week, suggesting the currency may fall more than 7 percent against the dollar.
‘Not Concerned’
“I am not concerned about the currency,” Ramez said.
The central bank moved 5 billion pounds of cash into the financial system, using military cargo planes to bring in bills, central bank Governor Farouk El-Okdah said Feb. 5 on state-run television.
The protests in Egypt were inspired by a revolt in Tunisia that led to the ouster of President Zine El Abidine Ben Ali on Jan. 14. The Tunisian central bank will have “no problem” in repaying almost $800 million of bonds denominated in euros and yen maturing this year, Mohamed Salah Souilem, general manager of external finances for Banque Centrale de Tunisie SA, said in a faxed response to questions from Bloomberg.
To contact the reporter on this story: Alaa Shahine in Cairo at asalha@bloomberg.net
To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net
Rate this Page