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Egypt Bonds Slump as Pound Forwards Drop Amid Political Crisis

Egypt Stocks Fall as Pound Forwards Drop After Mursi Defies Army
Egypt's pound has weakened almost 12 percent since Dec. 30, when the central bank eased its support in order to conserve foreignian reserves that plunged by more than half since the 2011 revolt that ousted Hosni Mubarak. Photographer: Shawn Baldwin/Bloomberg

Egypt’s benchmark bonds tumbled, pushing the yield to a record, as stocks and forward contracts for the pound dropped amid the nation’s worst political crisis since the 2011 revolt.

The yield on the $1 billion of 5.75 percent bonds due April 2020 jumped 55 basis points, or 0.55 of a percentage point, to 10.77 percent at 6:38 p.m. in Cairo, the highest on a closing basis since the notes were sold in 2010. Twelve-month non-deliverable Egyptian pound forwards weakened 8.1 percent, the most since Jan. 2, to 9.05 a dollar, data compiled by Bloomberg show. That signals investors expect a depreciation of 22 percent in a year from 7.0289 a dollar today.

Bonds extended losses as Gehad El-Haddad, the spokesman for the Muslim Brotherhood, from which President Mohamed Mursi hails, said on his Twitter account that tanks are on the streets and a “full military coup” was under way. Military leaders met in an emergency session before their 5 p.m. Cairo deadline for ending the nation’s political crisis. Egypt’s stock index fell 0.3 percent at the 2:30 p.m. Cairo close after rising the most in a year yesterday.

“It’s now obvious Mursi won’t let it go easily, which is bad for the market because it prolongs the battle between the military and the presidency,” Teymour El-Derini, director of Middle East and North Africa sales trading at Naeem Brokerage in Cairo, said by phone. “Everyone got too excited” following the army’s ultimatum, he said.

Foreigners Exit

The benchmark EGX 30 Index closed at 4,971.06 as the value of shares traded dropped 40 percent from yesterday to 292 million pounds ($42 million). Egyptians were net buyers of about 150 million pounds of stocks in the last two days, data compiled by Bloomberg show, as foreign investors exited.

The euphoria reversed after clashes between Mursi’s supporters and opponents left at least 23 dead since yesterday. The army said it was ready to sacrifice itself in the fight against “fools.” Mursi had vowed to defend his office with his life. His supporters insist his leadership is legitimate after he became Egypt’s first democratically chosen president a year ago.

“Everyone realizes we’re running the risk of a civil war breaking out if the continued escalation leads to a confrontation between the army and the Muslim Brotherhood,” Hany Genena, head of research at Cairo-based Pharos Holding, said by phone today. “The implications on tourism and Egypt’s balance of payments are very negative.”

Economic Slump

The presidency today offered forming a coalition government, a proposal that hasn’t drawn a response from the opposition. The military will make a statement after consulting with political leaders, state-run Nile News reported.

Political bickering in the past year has complicated the government’s ability to pull the nation of about 80 million people out of the worst economic slump in two decades and hindered talks with the International Monetary Fund for a $4.8 billion loan. The economy grew 2.1 percent in the fiscal year that ended June 30, near the slowest pace since 1992, the median estimate of 17 analysts compiled by Bloomberg shows.

Moody’s Investors Service cut Egypt’s credit rating two times this year to Caa1, its fifth-lowest junk score, while the country boosts sales of local-currency debt to bridge the Middle East’s biggest fiscal deficit. The budget gap reached 11.8 percent of projected economic output in May, according to Finance Ministry data, up from 10.8 percent in 2012.

Weaker Pound

The 2020 yield soared 211 basis points last month, taking it above securities due 20 years later for the first time. Turmoil this year has also hurt the Egyptian pound, whose movement on the interbank market is controlled by the central bank. The currency weakened 0.1 percent today, the most since May 16, according to data compiled by Bloomberg.

The pound is down 12 percent since Dec. 30, when the central bank eased its support of the currency in order to conserve foreign reserves that plunged by more than half since the 2011 revolt that ousted Hosni Mubarak. The regulator sold $38.8 million at a foreign-exchange auction today.

Five-year credit default swaps fell from a record, declining 25 basis point to 900, according to CMA, a data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers in the privately negotiated market. Egypt is one of the 10 riskiest credits in the world.

The country has about 1.4 trillion pounds of domestic debt and another $39 billion of external debt outstanding, according to Finance Ministry data. Combined, the liabilities represent about 94 percent of economic output.

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