Egypt's benchmark bonds tumbled, pushing the yield to a record, as stocks and forward contracts for the pound dropped after President Mohamed Morsi rebuffed the military's deadline to end the political crisis. The yield on the $1 billion of 5.75 percent bonds due April 2020 jumped 30 basis points to 10.52 percent at 3:37 p.m. in Cairo, the highest on a closing basis since the notes were sold in 2010. Twelve-month non-deliverable Egyptian pound forwards weakened 8.1 percent, the most since Jan. 2, to 9.05 a dollar, data compiled by Bloomberg show. That signals investors expect a depreciation of 22 percent in a year from 7.0289 a dollar today. Bonds extended losses as military leaders met in an emergency session before their 5 p.m. Cairo deadline for ending the nation's political crisis. The showdown could drive Morsi from power even as he vowed to defend his office with his life. Clashes between his supporters and opponents left at least 23 dead since yesterday. Egypt's stock index fell after surging the most in a year yesterday. "It's now obvious Morsi won't let it go easily, which is bad for the market because it prolongs the battle between the military and the presidency," Teymour El-Derini, director of Middle East and North Africa sales trading at Naeem Brokerage in Cairo, said by phone. "Everyone got too excited" following the army's ultimatum, he said. Foreigners Exit The benchmark EGX 30 Index lost 0.3 percent to 4,971.06 at the close in Cairo as the value of shares traded dropped to 292 million pounds ($42 million), compared with yesterday's 488 million pounds. Egyptians drove the 4.9 percent increase on the index yesterday as foreigners exited. Local investors were net buyers of 94.4 million pounds of stocks, the most since November 2012, data compiled by Bloomberg show. The euphoria reversed after 16 people were killed in battles near Cairo University between Morsi's backers and opposition protesters, according to Health Ministry figures cited by state-run Middle East News Agency. The army said it was ready to sacrifice itself in the fight against "fools." Supporters insist Morsi's leadership is legitimate after he became Egypt's first democratically chosen president a year ago. "Everyone realizes we're running the risk of a civil war breaking out if the continued escalation leads to a confrontation between the army and the Muslim Brotherhood," Hany Genena, head of research at Cairo-based Pharos Holding, said by phone today. "The implications on tourism and Egypt's balance of payments are very negative." Economic Slump Political bickering in the past year has complicated the government's ability to pull the nation of about 80 million people out of the worst economic slump in two decades and hindered talks with the International Monetary Fund for a $4.8 billion loan. The economy grew 2.1 percent in the fiscal year that ended June 30, near the slowest pace since 1992, the median estimate of 17 analysts compiled by Bloomberg shows. Moody's Investors Service cut Egypt's credit rating two times this year to Caa1, its fifth-lowest junk score, while the country boosts sales of local-currency debt to bridge the Middle East's biggest fiscal deficit. The budget gap reached 11.8 percent of projected economic output in May, according to Finance Ministry data, up from 10.8 percent in 2012. Weaker Pound The 2020 yield soared 211 basis points last month, taking it above securities due 20 years later for the first time. Turmoil this year has also hurt the Egyptian pound, whose movement on the interbank market is controlled by the central bank. The currency weakened 0.1 percent today, the most since May 16, according to data compiled by Bloomberg. The pound is down 12 percent since Dec. 30, when the central bank eased its support of the currency in order to conserve foreign reserves that plunged by more than half since the 2011 revolt that ousted Hosni Mubarak. The regulator sold $38.8 million at a foreign-exchange auction today. Five-year credit default swaps rose one basis point, or 0.01 of a percentage point, to a record 926, making Egypt one of the world's 10 riskiest credits, according to CMA, a data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers in the privately negotiated market. The country has about 1.4 trillion pounds of domestic debt and another $39 billion of external debt outstanding, according to Finance Ministry data. Combined, the liabilities represent about 94 percent of economic output.
