Egyptian Bonds Retreat After Moody’s Considers Credit Downgrade

Egyptian bonds sank after Moody’s Investors Service placed the country’s credit rating on review for downgrade, citing political tensions and growing uncertainty about financial aid from the International Monetary Fund.

Yields on Egypt’s 5.75 percent bonds due April 2020 climbed 5 basis points to 5.58 percent at 1:14 pm in New York, the biggest increase this year. The Egyptian pound weakened to a record level before the announcement, falling 0.3 percent to 6.6005 per dollar today.

Moody’s placed Egypt’s B2 government bond under review, citing unsettled political conditions even after a transition to civilian rule, concern about securing IMF support and capital controls imposed by the central bank, according to the statement. Qatar will increase its assistance to Egypt by buying $2.5 billion of government bonds to help shore up its economy, the North African nation’s Finance Minister El-Morsi Hegazi said yesterday in Cairo.

“It’s not just the political uncertainty that’s caused this, but there’s also potential risk on the external accounts side given that the IMF deal, at the moment, is off the table,” Anthony Simond, who helps manage $11 billion in emerging-market debt at Aberdeen Asset Management Plc in London, said by phone today. “Investors are concerned because at the moment Egypt is living month to month off of donor loans, the latest one coming from Qatar, and that’s just not sustainable.”

Resume Talks

Egypt’s country ceilings, which were not affected by the review, would probably be lowered if Moody’s were to downgrade the bond rating, it said.

Egypt expects the IMF to send a technical team to Cairo within three weeks to resume talks on a $4.8 billion loan, presidential spokesman Yasser Ali said Jan. 8. The government delayed the agreement last month after President Mohamed Mursi suspended tax increases linked to the program amid political tensions. Egypt’s foreign reserves have plunged almost 60 percent to $15 billion since the 2011 uprising that ousted Hosni Mubarak.

Standard & Poor’s cut on Dec. 24 Egypt’s long-term credit rating by one level to B-, the same junk level as Greece.

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