Egypt Bonds Fall as Foreign Reserves Hit 7-Year Low: Cairo Mover

Egypt’s 2020 dollar bonds retreated, sending the yield to the highest level this month, after the central bank said the country’s foreign reserves declined to the lowest level in more than seven years.

The yield on Egypt’s 5.75 percent notes jumped 14 basis points, or 0.14 of a percentage point, to 7.10 percent at 4:49 p.m. in Cairo, according to prices compiled by Bloomberg. The security has returned 7.4 percent this year, compared with 0.7 percent for the HSBC/NASDAQ Dubai Middle East Conventional Sovereign US Dollar Bond Index.

The North African country’s reserves fell to $16.4 billion last month, the lowest level since at least December 2004, according to central bank data. Reserves were at $18.1 billion in December. The decline came after Egypt paid $651 million of its external debt to creditors and $625 million was “repatriated by foreign investors” after their holdings of treasury bills matured, the regulator said.

“The dollar bonds will be impacted by the draw-down in reserves in the short-term,” said Anthony Simond, London-based emerging markets investment analyst at Aberdeen Asset Management Plc. “In the longer, term Egypt’s progress on the political side of the equation will have more of an impact. The market has been bullish so far this year partly based on that.”

Egypt completed parliamentary elections last month and the presidential poll is due to be held in June, according to a timeline set by the ruling military council.

IMF Loan

The Egyptian pound was little changed at 6.0327 a dollar after depreciating 3.8 percent in 2011. Twelve-month non- deliverable forwards for the pound were at 7.2 a dollar, reflecting expectations for the currency to decline 16 percent over that period.

“Hard depreciation, which the central bank has repeatedly said it is against, is still a worry for us,” Simond said. “If Egypt gets an IMF deal, it could be a real turning point.”

The country requested a $3.2 billion loan from the IMF with an agreement expected “within weeks,” Minister for Planning and International Cooperation Fayza Aboulnaga, said on Jan. 16. The government “must present proof” that foreign borrowing is necessary, or the country’s leading Islamist party in parliament, Freedom and Justice, will vote against the loan, Essam El-Erian, the group’s vice chairman, said yesterday.

Five-year credit default swaps, or the cost of protecting against default on Egyptian government debt for that period, advanced 13 basis points to 573, according to CMA, which is owned by CME Group Inc. and compiles prices from the privately negotiated market. That makes Egypt the riskiest investment in the Middle East.

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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