Egypt Bond Yields Jump to 5-Week High as Death Toll Rises

Egypt’s benchmark government bonds slumped for a second day, sending yields to a five-week high, as the death toll from a government crackdown on protesters climbed to almost 600. The nation’s default risk increased.

The yield on the 5.75 percent dollar-denominated notes maturing in April 2020 rose 22 basis points to 9 percent at 9:05 p.m. in Cairo, the highest on a closing basis since July 9 and taking the two-day surge to 68 basis points. Credit default swaps, contracts insuring the nation’s debt, have jumped 45 basis points in two days to 795, according to CMA data. The stock exchange was shut today after the central bank ordered banks to close.

At least 578 people were killed and more than 4,200 injured after police stormed two camps in the capital yesterday, where supporters of former President Mohamed Mursi had congregated since the military overthrew him July 3. The Muslim Brotherhood, Mursi’s main backers, said the death toll was many times higher than those released by the Health Ministry. The Egyptian government announced a monthlong state of emergency yesterday.

“The market’s reaction is overdue,” Philippe Dauba-Pantanacce, London-based senior economist for the Middle East and Turkey at Standard Chartered Bank, said by phone today. “Up until yesterday investors were shrugging off the possibility of a showdown, which was inevitable.”

U.S. Condemnation

President Barack Obama said today the U.S. “strongly condemns” the violence and announced the cancellation of joint military exercises, initially scheduled for next month. The U.S., which provides Egypt’s army with more than $1 billion a year under a decades-old alliance, is also considering “further steps,” Obama said.

London-traded shares of Commercial International Bank, Egypt’s biggest publicly traded lender, tumbled 5 percent, the most since July 3, at the close in London. The benchmark EGX 30 Index of stocks slid 1.7 percent yesterday, the most among 94 gauges tracked by Bloomberg.

“The market’s reaction to events like this is going to be hard and it’s going to be quick, at least until pressure on the street eases,” Souheir Asba, a frontier-markets strategist at Societe Generale SA in London, said by phone yesterday. “Closing of the banks and the bourse is disconcerting for investors because it may indicate that security forces are planning something even bigger and more violent.”

This is the first time the bourse faced an unscheduled shutdown since the January 2011 revolt, when trading was suspended for almost two months. Trading will resume Aug. 18, the bourse said yesterday.

Confidence Deteriorating

Egypt also postponed a 6.5 billion-pound ($929 million) treasury-bill auction and a foreign-currency sale today due to banks closing. The yield on one-year treasury bills has dropped in every auction since Mursi’s ouster to 12.69 percent at the last sale, the lowest since April 2011. The yield soared as high as 16 percent last year amid political unrest.

The government imposed a night-time curfew in at least 14 provinces in conjunction with the state of emergency declared by Interim President Adly Mansour. He authorized the army and police to take “all necessary measures” to restore security, according to an e-mailed statement yesterday. Vice President Mohamed El Baradei resigned in objection to the violence, according to a statement from his media office.

Optimism after Mursi’s ouster enabled the military-backed government to secure $12 billion of aid pledges from Persian Gulf countries including Saudi Arabia, helping bolster foreign reserves that fell by more than half since the January 2011 revolt that ousted President Hosni Mubarak. Egypt has struggled to pull the economy out of the worst slump in two decades and talks with the International Monetary Fund for a $4.8 billion loan have halted amid the unrest.

Yesterday’s crackdown will push “that deal at an even further date,” Standard Chartered’s Dauba-Pantanacce said. “The biggest setback is the relationship between Egypt and the rest of the world, the deterioration of confidence, especially from Western countries, since the economic situation is already quite dire.”

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