CAIRO: Egyptian Treasury bill yields have jumped since May and may rise further as foreign investors have become more risk averse due to fears the euro zone debt crisis could deepen, analysts and Egyptian bond traders say. Though inflation has slowed, investors have also become more wary of Egyptian securities, especially longer-maturity T-bills, because of high domestic borrowing and questions about succession after President Hosni Mubarak, 82, the traders say. The average yield on 357-day Treasury bills auctioned on Sunday rose 35 basis points to 10.915 percent from last auction on May 13. The yield on 182-day and 364-day bills has also climbed. "It started when the dollar began appreciating against the euro, causing an ouflow of investments by foreign investors in T-bills and stocks," said Mostafa Assal, a fixed income analyst at Beltone Securities. "The dollar's appreciation against the pound led to corrective action in yields. The foreigners that went out then came back," he added. "But yields are still going up." An Egyptian bond trader said foreign investors had become more averse to emerging market debt in general since the euro crisis. But he said political concerns about a transition after Mubarak were also making investors more cautious. Mubarak had gallbladder surgery in Germany in March. He has returned to a full work schedule, meeting a stream of visiting dignitaries, but questions about whether he will run in the 2011 presidential race have become more frequent. "First there's the political concern, and then the deficit," the trader said, referring to Egypt's budget deficit, which the government aims to keep at 7.9 percent of gross domestic product in the 2010/11 financial year, which begins July 1. Despite concerns about how the government will tackle its deficit, a $1.5 billion Euro bond issue in April was several times oversubscribed, and economists say Egypt will not face difficulties financing its shortfall. Egypt's economy grew by rapid 4.7 percent in 2008/09 when the global crisis was at its peak. Growth in the first quarter of 2010 was 5.8 percent. The bond trader also said euro zone worries had been the main force driving foreign investors out of Egyptian securities, although some were starting to return slowly even if not in large enough numbers to change the direction of yields. T-bills with a maturity of 364 days auctioned on June 3 rose 22 basis points from yields on bills of the same maturities sold four weeks earlier, while 182-day bills auctioned on June 6 rose 19 basis points over two weeks. Another trader at an Egyptian bank said yields had mostly increased a month ago when the Egyptian pound started its sharpest slide against the dollar in recent months. The pound has weakened steadily against the dollar, and was trading at 5.6750 to the greenback on Thursday, moving closer to a more than four-year low of more than 5.7025. "Foreigners think the pound will weaken, and that yields will get higher," Assal said. "I think rates will still go up on nine-month and one-year bills." Yields have also been pushed higher in part because Egyptian banks, who are the main holders of domestic Egyptian government debt, do not have as much liquidity as they did. State banks, which still dominate the market, close their annual balance sheets at the end of the month with the financial year, reducing their liquidity to buy debt instruments. "Because inflation went down, it's a little unusual" that T-bill yields have risen, the bond trader said. But he said this reflected concerns that price rises were not yet under control. The state statistics agency said on Thursday that urban inflation dipped in May to an annual 10.5 percent, its lowest level since August. But the central bank's core inflation rate edged up to 6.69 percent in May from 6.62 percent in April.
