Bloomberg News

Egypt’s Dollar Bond Yield Rises to Record on Political Risk

January 09, 2012

(Updates with local debt sale in second, fifth paragraphs.)

Jan. 9 (Bloomberg) -- The yield on Egypt’s 10-year dollar bonds rose to a record amid investor concern that political instability will hurt the country’s ability to raise funds.

The rate on the 5.75 percent notes maturing in April 2020 gained 11 basis points, or 0.11 percentage point, to 8.38 percent at 4:06 p.m. in Cairo. The Finance Ministry sold 6.1 billion Egyptian pounds ($1 billion) of treasury bills and bonds at auctions today, missing its 6.5 billion-pound target, as borrowing costs rose on nine-month and seven-year securities.

“There’s some pessimism in the market about where the country is going,” said Gabriel Sterne, a London-based senior economist at Exotix Holdings Ltd. “Egypt needs a heavy dose of traditional IMF medicine, including reducing budget deficit and cutting fuel subsidies.”

An International Monetary Fund mission will visit on Jan. 15 to resume talks on a $3.2 billion loan, Al Ahram newspaper reported yesterday. The government had turned down a similar loan package in June. Voters in the North African country are scheduled to complete elections for the lower house of parliament in the next two weeks, leading up to the first anniversary of the revolt that ousted former President Hosni Mubarak.

The government raised 2.88 billion pounds in nine-month notes out of its target of 3.5 billion pounds today at an average yield of 15.386 percent, an eight basis-point gain from the last sale on Dec. 28, according to central bank data on Bloomberg. It also sold 500 million pounds in seven-year bonds at a yield of 16.27 percent, up from 14.52 percent at the last auction of similar-maturity bills in October. Egypt accepted 2.71 billion pounds of three-month bills, more than its goal of 2 billion pounds, at an average yield of 13.833 percent, a decline of 12 basis points.

International reserves dropped to $18.1 billion in December from $20.2 billion the previous month. Reserves were at $36 billion in December 2010. “The decline in reserves is a genuinely worrying development over the last two months,” Sterne said.

--Editors: Claudia Maedler, Shanthy Nambiar

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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