Egypt Yields Decline as Qatar Pledges Bond Purchase; Pound Falls

Egypt met its target at a treasury-bill auction as local borrowing costs dropped after Qatar pledged to buy debt. The pound retreated after the central bank’s 12th auction of dollars to banks.

The Arab country sold 3.5 billion pounds ($530 million) of nine-month notes at an average yield of 13.69 percent, according to central bank data on Bloomberg. That’s a decrease of 71 basis points, or 0.71 of a percentage point from an auction of similar-maturity bills last week, the most since September. The three-month yield fell 56 basis points to 12.88 percent, the data show.

Egypt’s cabinet is due to discuss this week selling $2.5 billion of treasury bonds to Qatar after the Persian Gulf country committed the funds as part of an aid package, Egyptian Finance Minister El-Morsi Hegazi said last week. The North African country is looking to bolster foreign currency reserves, which have lost almost 60 percent since the start of a popular revolt two years ago, after the central bank started selling dollars to banks at auction to limit their decline.

“Potential Gulf investment in Egyptian debt may be driving yields down,” Nour Mohei-El-Din, assistant general manager for treasury at BNP Paribas Egypt, said by phone. “Otherwise, it would be very odd for borrowing costs to decline even as the pound continues to weaken.”

IMF Return

The central bank sold $74.3 million to banks today out of the $75 million it offered at a weighted average bid price of 6.5875 a dollar, according to its data on Bloomberg. The pound weakened to 6.6203 a dollar as of 2:37 pm in Cairo, bringing its loss to 6.6 percent since the start of the dollar auctions Dec. 30.

An International Monetary Fund team may return within weeks to resume talks on a $4.8 billion loan application after Egypt adjusts its economic plan to account for recent economic and political developments, Masood Ahmed, director of the lender’s Middle East and Central Asia Department, said Jan. 18.

A delay in securing aid from the fund has prompted Moody’s Investors Service to place Egypt’s B2 rating on review for possible downgrade. The move followed last month’s Standard & Poor’s cut of the country’s rating to B-, six levels below investment grade and on par with Greece and Pakistan.

Egypt’s benchmark 5.75 percent dollar bonds due in April 2020 advanced last week as the yield retreated one basis point to 5.57 percent, according to data compiled by Bloomberg.

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