Egyptian Borrowing Costs Decline as Political Rivals Talk

Egypt’s short-term yields fell at a 5.5 billion Egyptian-pound ($818 million) auction of treasury bills after the ruling Islamists met with opposition leaders in an attempt to resolve a three-month old political crisis.

The North African country sold 4 billion pounds of nine-month debt at an average yield of 13.84 percent according to central bank data on Bloomberg. That’s a drop of 13 basis points, or 0.13 of a percentage point, from the previous sale, the most in four weeks. The yield on the sale of 1.5 billion pounds of three-month notes retreated 10 basis points to 12.78 percent.

Tensions between the Muslim Brotherhood and the secular opposition, which have turned violent and helped push the local currency to record lows, may be easing following a meeting between leaders from both sides yesterday. Saad El-Katatni, head of the Brotherhood’s Freedom and Justice Party, said he met with opposition leaders, including Nobel Laureate Mohamed ElBaradei, to “exchange view points on the current political situation,” without providing more detail.

“The political scene has a direct impact on the market, and more stability should help stabilize yields further,” Ahmed El Khouly, head of treasury at Housing and Development Bank, said by phone. “In the meantime, the slowdown in economic activity and investment is causing money to accumulate in the banks, so naturally yields have to come down.”

Debt Demand

Demand for three-month debt today was 2.7 times the amount offered, according to central bank data. Bids of nine-month bills were 2.9 times the amount offered.

Egypt’s pound has weakened 8 percent to 6.7304 a dollar since the central bank started auctioning U.S. currency to local lenders in December to limit its access as foreign reserves declined. The dollar’s rate in the black market increased to 7.05 pounds today, according to the state-run Ahram Gate website.

The yield on the government’s benchmark 5.75 percent dollar-denominated bonds due in April 2020 rose 15 basis points last week to 6.77 percent, near the highest level since June.

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