Egyptian treasury bill yields continued to decline at an auction on Thursday from their highest in at least a decade, helped by greater liquidity among banks and optimism that the country's new president will work to stabilise a struggling economy. Mohamed Mursi took office on 30 June after 16 months of turbulent military rule and already has his hands full trying to form a government and find a compromise with the generals over whether parliament should be disbanded. If he succeeds, it could bring Egypt the political stability it needs to start tackling a state funding and balance of payments crisis and draw foreign donor funds to tide the government over until the economy recovers. Support from Saudi Arabia, heftier repo offerings and the introduction of 28-day repos are bolstering the liquidity of local banks for now, ensuring they can keep funding the government's budget deficit. The average yield for 182-day paper fell to 15.324 percent from 15.421 percent at last week's auction. The central bank sold all the 2 billion pounds ($329.95 million) it had offered on behalf of the finance ministry. The 364-day yield declined to 15.825 percent from 15.943 percent at the last issue on 3 July. The bank sold all the 3.5 billion pounds of that maturity it had offered. "You can tell there was demand by the strong fall in yields over two auctions of over 20 basis points for the six-month bill," said Youssef Kamel at Delta Rasmala. He said the bid-to-cover ratio would be a more accurate indicator of demand when it appears in coming days, and that ratio was likely to be higher than last week because there were fewer bills on offer. Analysts say the arrival of Mursi, despite the early tensions with the army, has raised the probability that Egypt will secure an International Monetary Fund package tied to economic reforms. A deal would represent a statement of confidence in a country whose governance has been in disarray since the overthrow of Hosni Mubarak in February 2011. The introduction of 28-day repos will ease tight liquidity in the market for now, Kamel said. "However, unless the fundamentals improve, we can expect to eventually see liquidity conditions getting tight again even with the 28-day facility in place, which is similar to what happened with the 7-day repo," said Kamel. Most foreign investors are steering clear of Egypt for now for fear of a sudden drop in the local currency that would wipe out even the generous returns on local treasuries. The central bank has drawn down foreign currency reserves to support the pound since Mubarak was overthrown. Bids on the currency dipped to their lowest since January 2005 on Thursday, reaching 6.061 after closing at 6.058 on Wednesday.
