Egypt 1-Year Yields at Highest Since September on Funding Crunch

Egypt’s one-year treasury bill yields jumped to the highest level since September after the government indicated it will sell more of its shortest-term securities to repay about $1.6 billion a week of maturing debt.

The average yield on one-year securities climbed 33 basis points, or 0.33 percentage point, to 14.79 percent at an auction today, while yields on six-month notes surged 47 basis points to 14.28 percent, according to central bank data compiled by Bloomberg. Yields on six-month bills for Greece, which shares Egypt’s B- rating at Standard Poor’s, are at 4.25 percent.

Local yields are surging and the pound is weakening in unregulated trading as the government cuts dollar supplies to finance imports and reserves dwindle. While seeking to quiet protests and resolve International Monetary Fund loan talks, Egypt needs to repay about 138 billion pounds of local debt maturing this quarter, a 6 percent increase from the previous three months and the equivalent of about $1.6 billion a week at the official exchange rate, data compiled by Bloomberg show.

“It’s a problem for the government to build more debt on the short end, but they have to,” Win Thin, global head of emerging-markets strategy at Brown Brothers Harriman & Co. in New York, said by phone yesterday. “It’s a real mess there in Egypt.”

The Arab country aims to raise 79.8 billion pounds ($11.7 billion) through the sale of three- and six-month bills, up from the previously planned 52.5 billion pounds, according to a debt sale calender for the three months ending June 30 obtained yesterday by Bloomberg. Combined issuance of nine- and 12-month securities and bonds that mature in as many as 10 years will be trimmed by 29 percent to 91 billion pounds, the document shows.

Raising Rates

Egypt’s total fundraising target this quarter is 170.8 billion pounds, according to the Finance Ministry calendar. The government raised 149 billion pounds last quarter, data compiled by Bloomberg show.

Policy makers in Egypt raised rates by 50 basis points, pushing the deposit rate to 9.75 percent and the lending rate to 10.75 percent, to combat inflation after consumer prices jumped 2.5 percent in February, the most in more than two years.

The government is meeting with an International Monetary Fund team in Cairo to secure a $4.8 billion loan that officials say will help boost foreign reserves and lower borrowing costs. The nation’s benchmark Eurobonds rallied today, sending the yield on the $1 billion 5.75 percent notes due April 2020 down 32 basis points today to 8.08 percent.

Weakening Pound

The pound has depreciated almost 7 percent this year to 6.8381 a dollar as of 4:59 p.m. today in Cairo, data compiled by Bloomberg show. The currency is trading at 7.85 a dollar on the black market, according to the average of three quotes from money exchangers in Cairo who asked not to be named because the trade is illegal. The rates ranged between 7.7 pounds and 7.95 per dollar.

Three-month non-deliverable forwards on the pound weakened 0.6 percent to 7.35 per dollar today.

Egypt’s domestic debt climbed 22 percent last year to about 1.3 trillion pounds, or 73 percent of economic output, according to data posted on the Finance Ministry’s website. Most of the country’s outstanding 745 billion pounds of government securities is held by local banks as foreigners have sold almost all of the 59 billion pounds of notes they held before the start of the popular uprising that ousted former President Hosni Mubarak, according to central bank data.

“Coming to the market more often exposes you to rollover risks and unpredictable liquidity conditions, which could increase your borrowing costs if conditions are adverse,” Jean-Michel Saliba, a London-based economist at Bank of America Corp., said by phone yesterday.

Stalled Talks

Protests have flared in Egypt since November as the nation’s first freely elected President Mohamed Mursi struggles to deliver stability and boost living standards. Talks with the IMF had stalled since November as the instability meant that the government was unable to implement the measures agreed on last year in a preliminary accord with the Washington-based lender, including reducing the budget deficit.

Egypt “hopes” to reach agreement with the IMF during a visit that started yesterday, Prime Minister Hisham Qandil told reporters in Cairo. The government is striving to reduce a budget deficit projected to equal 10.9 percent of gross domestic product this year to 9.5 percent in 2014, above a 8.5 percent goal announced in November.

The deficit and increase in public debt “are unsustainable,” Bank of America’s Saliba said. “There needs to be some serious fiscal consolidation in order to reverse those dynamics.”

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