Egypt’s Nine-Month Yields Plunge as Devaluation Bets Wane

Egypt’s nine-month yields plunged to the lowest since November and the country sold its first floating-rate bonds as concern about a currency devaluation waned and protests against an anti-Islam movie died down.

The average yield on the government’s sale of 4.3 billion Egyptian pounds ($705 million) of 273-day treasury bills dropped 102 basis points, or 1.02 percentage points, to 14.465 percent, at an auction today, according to central bank data on Bloomberg. The government also sold its target 1 billion pounds of two-year floating-rate T-bonds at an average yield of 15.388 percent, the regulator’s data shows. The notes carry a coupon of 15.454 percent.

The yield on six-month and one-year securities tumbled to the lowest since November at an auction on Sept. 13. Bank of America Merrill Lynch said yields may drop about 300 basis points, or 3 percentage points, in the year after the government signs a loan agreement with the International Monetary Fund. External financing may help Egypt avoid a “large devaluation,” Barclays Plc’s investment banking unit said last week.

“There’s increased foreign interest in Egypt’s local debt,” Nour Mohei-El-Din, assistant general manager for treasury at BNP Paribas Egypt, said by phone before the auction results. “There are reduced fears of a major devaluation here.”

Foreign investors sold off their government debt holdings after last year’s uprising on concern the worst drop in foreign-currency reserves since 2004 would force Egypt to devalue the pound, which is subject to a managed float. Domestic banks were left with the onus of buying the debt, sending borrowing costs to record highs. The pound weakened less than 0.1 percent to 6.0964 a dollar last week.

Aid Pledges

In addition to a $2 billion deposit with the central bank and $18 billion of investment pledges from Qatar, Egypt will receive $2 billion in aid from Turkey, Finance Minister Momtaz El-Saieed said yesterday. The country is due to restart talks with the IMF this month for a loan of as much as $4.8 billion as it seeks to accelerate economic growth to more than 4 percent.

Protests against a film seen as insulting to Islam eased in the Middle East following violence in Libya, Tunisia, Sudan and Yemen. Clashes in Cairo’s Tahrir Square stopped yesterday after Egypt’s main Islamist groups called for calm. Police secured the square and arrested 220 people, the country’s Interior Ministry said in a statement.

Plunging Yield

The central bank, which holds domestic debt auctions on behalf of the Finance Ministry, allowed investors to bid for the floating-rate notes at a maximum spread of 0.4375 percent, according to data on Bloomberg. The base rate, which is calculated every six months, is the weighted average yield of the last four auctions of six-month T-bills. The yield on 182-day securities plunged 85 basis points at a sale last week to 14.25 percent.

The yield on the nation’s 5.75 percent dollar bonds due in April 2020 fell six basis points last week to 5.28 percent, according to prices compiled by Bloomberg.

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