Egypt Yield Drops Most Since Revolt as Stocks Surge on Mursi Win

Egypt’s benchmark dollar-bond yield tumbled the most since the early days of last year’s uprising, and stocks posted the biggest gain since 2008 after Islamist Mohamed Mursi won the first free presidential election.

The yield on the 5.75 percent notes due 2020 plunged 66 basis points, or 0.66 of a percentage point, to 7.21 percent at 2:49 p.m. in Cairo, data compiled by Bloomberg show. That’s the biggest drop on a closing basis since February 2011. The rate surged 97 basis points last week in the runup to the announcement. The benchmark stock index soared 7.6 percent.

In his first televised address last night, Mursi, who won against Ahmed Shafik, Hosni Mubarak’s last premier, called for national unity, and promised to honor international treaties and work to build a “modern, constitutional” state. He saluted the people killed during the uprising and their families and also paid tribute to the armed forces, whose leaders currently lead the government.

“We expect a knee-jerk reaction to Mursi’s victory,” said Nour Mohei-el-Din, assistant general manager for treasury at BNP Paribas Egypt. “A positive trend in the bonds can only continue if his promises translate into real change for the economy, jobs are created and foreign investment comes back.”

Transitional Period

The country’s five-year credit default swaps, reflecting the cost to insure government debt for that period, dropped 26 basis points to 697, according to CMA, which is owned by CME Group Inc. and compiles data from the privately negotiated market. They’re still among the 10 riskiest credits in the world. The Egyptian pound, subject to a managed float, was little changed at 6.0564 a dollar.

Before the presidential election, the ruling military council boosted its authority while taking powers from the president after a court ordered the dissolution of the Islamist- dominated parliament. Decrees granted the military legislative powers and the ability to play a direct role in shaping a new constitution.

Mursi’s supporters, who had gathered in major squares around the country, including Tahrir in Cairo, ahead of the results, celebrated the victory. They also promised to continue protests against the military’s moves to consolidate power. Mursi is set to officially take office by July 1, the start of the country’s fiscal year.

“We’re still in the midst of a transitional period with no real positive effect on the economy,” Mohei-el-Din said. “Investors, especially in the 2020 and 2040 dollar bonds, need to see progress on the ground before they make the decision to come back.”

The yield on Egypt’s 6.875 percent 2040 dollar notes retreated 26 basis points, the most since May 2011, to 8.64 percent.

Shares Rally

The benchmark EGX 30 Index (EGX30) jumped the most since February 2008, climbing 7.6 percent to 4,482.48 at the close in Cairo and trimming the drop for the quarter to 11 percent. Trading was halted for 30 minutes after the broader EGX 100 Index rose 5 percent. Trading volume reached about 169 million shares, the highest in more than two months and compared with a daily average of 70 million shares in the past week.

Orascom Construction Industries (OCIC), Egypt’s biggest publicly traded builder, soared 7.4 percent, the most since March 2011, to 237.93 pounds. Commercial International Bank Egypt SAE (COMI), the biggest lender by assets, surged 9.7 percent, the biggest gain since October 2008, to 24.43 pounds.

“The market is reacting strongly despite the fact there are still many risks ahead,” Tamer Nigm, head of sales and trading at Cairo-based Watheeqa Securities, said by phone. “It’s overly optimistic as people are still in Tahrir with more demands and nothing has changed fundamentally to resolve political tensions.”

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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