Egypt bond yields at record, currency falls

Central bank says it's only sold half the LE1 billion it offered in seven-year bonds as yields near 16.5 per cent

The yield on an Egyptian dollar-denominated bond touched a record high on Monday as the government struggles to fund a widening budget deficit at affordable rates and sliding foreign reserves add to pressure on its pound currency.
The central bank said it sold only half of the LE1 billion of reopened seven-year bonds it had offered on behalf of the government and the yield had ranged from 15.95 to 16.49 per cent.
The yield on a 5.75 per cent dollar-denominated Eurobond maturing in April 2020 was at 8.24 per cent. It reached as low as 5.3325 per cent in September after peaking above 7.12 per cent during a popular uprising that unseated Egypt's president in February last year.
Foreign investors are still largely absent from Egypt's debt market, partly for fear that the Egyptian pound is set for a sharp fall that could wipe out even the generous returns on offer on government debt.
"It's hard to get anyone to take seven-years on anything, let alone Egypt," said one Middle East investment analyst who asked not to be named. "There's a lot of worry over where Egypt's economy is heading."
Egyptian credit default swaps reached their highest since March 2009 on Monday, according to data from Markit.
The pound hit a seven-year low against the dollar on Monday of 6.035 after central bank data last week erased optimism that a decline in foreign currency reserves is slowing.
Official forex reserves fell by close to $2 billion last month to $18.1 billion. Capital flight since the overthrow of leader Hosni Mubarak and its chaotic aftermath has pushed reserves down from $36 billion a year ago.
The decline came after the central bank issued $1 billion of dollar-denominated treasury bills and received an estimated $270 million from the Arab Monetary Fund, said Barclays Capital, implying an even worse drop in Egypt's external position.
"The latest drop in reserves clearly confirms that risks to the downside have greatly increased. We have no current outstanding recommendation on the pound but would definitely not be looking to buy," Barclays Capital said in a recent note.
Peaceful elections to Egypt's first free parliament since Mubarak's overthrow have boosted optimism that the ruling military council can engineer a smooth transition to civilian rule, a vital step to restoring foreign investor confidence.
But a new government cabinet appointed in the wake of deadly street clashes in November has made little headway in securing the kind of foreign funds it needs to fill a ballooning budget deficit.
There remains little clarity on when it might secure help from the International Monetary Fund.
A previous interim cabinet secured a $3 billion facility from the IMF last June but then turned it down, with the military unwilling to borrow heavily without a popular mandate.