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Egypt Meets T-Bill Goal, Cuts Reserve Requirement After Vote

Egypt met its fundraising target at a government-debt auction and the central bank cut the local-currency reserve requirement after the country’s presidential vote last week.

The North African country sold three- and nine-month notes valued at 1 billion pounds ($166 million) and 2.5 billion pounds, respectively, according to central bank data on Bloomberg. The central bank lowered the required reserve ratio for banks to 10 percent, the second reduction this year, to free up funds for lenders. The move aims to “further ease credit conditions in the market and provide additional permanent liquidity into the banking system,” it said.

The government’s borrowing costs surged by about 50 percent since the start of the uprising that ended Hosni Mubarak’s three decades of rule last year. Violence and political unrest forced foreign investors out of the market, and local banks to increase their government-debt holdings. Today’s sale is part of a Finance Ministry plan to raise 150 billion pounds this quarter, the last of the country’s fiscal year.

The reserve requirement cut is “positive for the banking sector because it will increase liquidity,” said Mona Mansour, co-head of research at CI Capital. Still, “yields will remain high until we see what happens with the elections and after the results are announced. I think there may still be unrest for the coming six months.”

Runoff Round

The presidential election is poised for a second round after the Muslim Brotherhood’s Mohamed Mursi came in first, followed by Ahmed Shafik, the former civil aviation minister-turned-premier in Mubarak’s last days in office, unofficial results showed. Hamdeen Sabahi, who emphasized his pro-revolution stance during his campaign, was third and has vowed to contest the result because of alleged irregularities. Since no candidate appeared to have secured more than 50 percent of the vote, a runoff round will be held next month between the top two.

The average yield on three-month securities at today’s sale rose seven basis points, or 0.07 of a percentage point, to 14.388 percent, the highest level since Bloomberg started tracking the data in 2006. The nine-month yield declined four basis points to 15.825 percent.

The yield on Egypt’s 5.75 percent dollar bonds due in 2020 fell 10 basis points, or 0.1 of a percentage point, 6.74 percent on May 25, according to prices compiled by Bloomberg. That’s the lowest level since April 5. The Egyptian pound was little changed at 6.0405 a dollar.

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