Egypt Bonds Tumble as Tantawi Pledge Seen as a ‘Step Backward’

Egypt Bonds Tumble
Egypt's central bank, which holds weekly debt auctions on behalf of the Finance Ministry, will offer a combined 5.5 billion pounds in six-month and one-year treasury bills tomorrow. Photographer: Shawn Baldwin/Bloomberg

Egypt’s benchmark dollar bonds slumped, sending the yield to the highest level since January, after concessions made by the country’s military rulers were rejected by protesters demanding a civilian government.

The yield on the government’s 5.75 percent bonds due 2020 climbed 11 basis points, or 0.11 percentage point, to 6.98 percent at 3:01 p.m. in Cairo. The yield soared 73 basis points in the previous two days. The cost of protecting the nation’s debt against default for five years rose nine basis points to 554 today, the highest level since March 2009.

The head of Egypt’s ruling military council, Field Marshal Mohammed Hussein Tantawi, said in a televised speech yesterday he had accepted the resignation of the Cabinet and that presidential elections would be held by the end of June. Tens of thousands of demonstrators in Tahrir Square chanted “go, go,” after the address, echoing the reaction to concessions made by former President Hosni Mubarak before he was ousted in February.

“Clearly this is a step backward in terms of achieving political stability,” said Antoon De Klerk, a London-based economist who helps manage $5 billion in emerging-market debt at Investec Asset Management. The government is unlikely to be able to obtain help from the International Monetary Fund given the political crisis, he said.

Seven-Year Low

Egypt had been “on the verge” of formally asking the IMF for the $3 billion loan it rejected earlier this year as domestic borrowing costs soar, outgoing Finance Minister Hazem El Beblawi said by telephone today. The new government will decide whether to ask the IMF for a loan, he said.

The central bank, which holds weekly debt auctions on behalf of the Finance Ministry, will offer a combined 5.5 billion pounds ($917 million) in six-month and one-year treasury bills tomorrow. The yield on the one-year securities climbed a percentage point to 14.725 in the past month, the highest level since September 2008.

The economy grew 1.8 percent in the fiscal year that ended on June 30, its weakest performance in at least a decade.

Twelve-month non-deliverable pound forwards, or contracts that provide guidance to expectations over a set period, weakened 2.5 percent to 7.2 per dollar, the lowest level since February. The pound fell less than 0.1 percent to 5.9980 a dollar, the lowest in almost seven years.

Stocks Rebound

The benchmark EGX 30 Index rose for the first time in 11 trading days, gaining 1.1 percent to 3,717.48 at the close. The measure’s 9.9 percent drop this week brought the slump for the year to 48 percent, making it the world’s third-worst performer after Cyprus and Greece this year.

“We’ve seen 10 red sessions so buyers today are seeing some good opportunities despite the uncertainty about the elections,” said Teymour El-Derini, head of Middle East sales at Cairo-based Naeem Brokerage. “We expect further declines in the near term until there’s more visibility because nothing has changed on the ground.”

Clashes in Cairo, Alexandria, Suez and other cities have left at least 30 people dead in the past week, marking some of the most pronounced violence since Egypt’s uprising early this year against Mubarak. The new confrontations threaten to disrupt parliamentary elections due to start next week. Tantawi said the vote would be held on time.

“We don’t accept these decisions,” Ahmed Abd Allah, the public awareness and training officer for the activist group April 6 Youth Movement, said in an interview outside the group’s tent in Cairo’s Tahrir square after Tantawi’s speech. “We refuse to negotiate with the council. They must leave the political scene immediately in order to avoid further escalation.”

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