CAIRO: Growing local appetite for medium-term Egyptian government debt helped push the average yield on three-year bonds lower at an auction on Monday and market watchers said investors were shifting some funds from short-term tenors. Egyptian treasury yields have soared in the past year as foreign investors fled the economic turmoil that followed a popular uprising, putting the onus on local banks to help make up for weaker tax income and higher wage and subsidy demands. The yields have eased a little since February on hopes for a peaceful transition from army rule and optimism the government will avert a funding crisis with aid from foreign donors. The central bank injected more liquidity into banks on March 20 when it cut a reserve requirement on local currency deposits. "There is currently a shift from short-dated treasuries towards long-dated ones," said Khalil El-Bawab, fixed-income director at EFG-Hermes. "It is possibly a consolidation phase and a realization that we are at the peak, if not close to it." The central bank sold three-year, seven-year and ten-year bonds worth LE 4 billion ($662.4 million) on Monday, the same amount that was offered, the Ministry of Finance said. The average yield on the three-year bonds worth 2 billion pounds and maturing on April 3, 2015, was 16.17 percent, compared to 16.25 percent at an auction of reopened three-year bonds on March 26 and 16.36 percent at an auction earlier in March. The coupon was 16.15 percent and yields ranged from 16.10 to 16.22 percent, implying healthy demand. "There has been increasing appetite for the 3-year T-bond over the past few auctions; its yield has fallen by over 25 basis points since Feb. 14," said Youssef Kamel, a fixed-income analyst at Delta Rasmala. "Investors are still conservative when it comes to the longer-term issues as the yield on the 7-year has remained almost unchanged over nearly the same period, since Feb. 21." The bank sold seven-year bonds worth 1 billion pounds that mature on April 3, 2019. The average yield was 16.88 percent, unchanged from an auction of reopened seven-year bonds on March 19. The coupon was 16.85 percent and yields ranged from 16.75 to 16.91 percent. The ten-year bonds worth 1 billion pounds mature on April 3, 2022, and have a coupon of 17 percent. The yields ranged from 16.95 to 17.05 percent, with an average of 17.03 percent. Settlement will take place on April 3. Foreign investors are still wary of venturing back to Egypt, partly for fear of a currency devaluation that could wipe out their returns. With the central bank supporting the local pound currency through the crisis, foreign currency reserves have slid to less than half their level before the January 2011 uprising against President Hosni Mubarak. That decline has slowed in recent months, with reserves dropping by $600 million in March to $15.12 billion, according to central bank data released on Monday. But some economists say a significant weakening of Egypt's currency still looks likely. – Additional reporting by Mohamed Samir
