Egypt Yields Drop Most on Record, Stocks Jump on Ouster

Egypt’s benchmark bond yield dropped the most on record and stocks surged after the army deposed President Mohamed Mursi in a move it said aimed to restore stability. The nation’s credit risk plunged.

The yield on the 5.75 percent bonds due in April 2020 tumbled 148 basis points, or 1.48 percentage points, the most since the notes were sold in 2010, to 9.29 percent at 6:48 p.m. in Cairo, data compiled by Bloomberg show. The EGX 30 Index of stocks rallied 7.3 percent, the biggest jump since June 25, 2012, the first trading day after Mursi was declared Egypt’s first democratically elected president. Commercial International Bank Egypt SAE led the gains, surging 10 percent.

The nation’s five-year credit default swaps slid 100 basis points as Adly Mansour, the chief justice of the constitutional court, was sworn in as interim president. The military yesterday ousted Mursi and called early elections as part of a plan agreed on with politicians and religious leaders.

“Last night’s dancing and celebrations on the streets are being echoed in the market,” Ashraf Akhnoukh, Cairo-based senior manager for Middle East and North Africa markets at Commercial International Brokerage Co., said by phone. “Some could consider it a coup, but it’s still better for the country because it gives it a chance to move forward and rebuild its economy.”

Photographer: Spencer Platt/Getty Images

The military’s announcement drew thunderous cheers from the hundreds of thousands who, for the past four days, gathered in Cairo’s Tahrir Square and across Egypt, united largely by their opposition to the president. Close

The military’s announcement drew thunderous cheers from the hundreds of thousands who,... Read More

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Photographer: Spencer Platt/Getty Images

The military’s announcement drew thunderous cheers from the hundreds of thousands who, for the past four days, gathered in Cairo’s Tahrir Square and across Egypt, united largely by their opposition to the president.

‘Marked Shift’

The CDS contracts decreased to 800, the lowest since June 21, according to CMA, a data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers in the privately negotiated market. Egypt remains one of the world’s 10 riskiest credits and the 2020 bond yield is still up about 3 percentage points in the past year.

The country is struggling with the worst economic slump in two decades and facing the Middle East’s biggest budget deficit as a percentage of economic output. Egypt has about 169 billion pounds ($24 billion) of local-currency debt repayments this quarter, a record, according to data compiled by Bloomberg. Political bickering since Mursi was elected has prolonged talks with the International Monetary Fund for a $4.8 billion loan.

“There’s a marked shift in sentiment but it should be a temporary move because Egyptian fundamentals are just terrible,” Raza Agha, chief Middle East and Africa economist at VTB Capital Plc, said by phone from London. “It remains to be seen whether the army can move forward with reduced involvement from the Islamists. An IMF program remains central to sustained positive economic development and it’s not clear whether that can be secured amid the upcoming transition.”

Local Buyers

Support for the military’s move from Persian Gulf countries Saudi Arabia, the world’s biggest oil exporter, and the United Arab Emirates “bodes well for bilateral aid until an IMF deal can be secured,” Agha said.

The army’s measures were cast as putting Egypt back on a path of the 2011 uprising that Mursi’s critics said was subverted by the Muslim Brotherhood organization that fielded him. Mursi, 61, said the army had carried out a coup and Muslim Brotherhood spokesman Gehad El-Haddad said the actions by the military were the work of “the old regime.”

Foreign investors have been wary of Egyptian assets, being net sellers of stocks in the past three days, according to bourse data, and offloading their holdings of treasury bills since the 2011 revolt. Egyptians were net buyers of about 150 million pounds of stocks on July 2 and 3, data compiled by Bloomberg show.

The value of shares traded today was 383 million pounds, compared with a six-month daily average of 303 million pounds. The Market Vectors Egypt exchange-traded fund rose for a fifth day yesterday in New York.

Debt Auctions

The nation raised the 7 billion pounds of six-month and one-year treasury bills it sought at an auction today, as bids for one-year bills exceeded the amount offered by 2.2 times and the yield plunged 80 basis points to 14.6 percent, according to central bank data on Bloomberg. The sale is part of a plan to sell 200 billion pounds of debt in the period.

The Egyptian pound, whose movement on the interbank market is controlled by the central bank, strengthened to 7.0283 a dollar today from an all-time low of 7.0289 yesterday. The currency has weakened 12 percent since the central bank eased support for the currency to trim a slump in foreign reserves.

The dollar’s exchange rate fell to 7.56 pounds on the black market today from 7.59 yesterday, according to the average quote of five dealers in Cairo, who asked not to be identified because the business is illegal.

Twelve-month non-deliverable forwards for the currency appreciated 1.1 percent from a record low to 8.95 a dollar today, reflecting bets the currency will depreciate about 21 percent in a year, data compiled by Bloomberg show.

To contact the reporters on this story: Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net; Daliah Merzaban in Dubai at dmerzaban@bloomberg.net

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

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