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Egypt bond, treasury-bill yields drop on stability hopes

Yields on Egyptian treasury bills eased at an auction on Sunday, mirroring a decrease in domestic political tensions since the smooth election of a president last month and the injection of several billion dollars in foreign funding.

Interest rates had climbed as much as 6 percentage points since last year's popular uprising, which sparked social turmoil, hammered the economy and left local banks shouldering almost all the burden of lending to the state. The cost of state borrowing is now at its highest in at least a decade.

The election of the Muslim Brotherhood's Mohamed Mursi to the country's highest office, while tempered by a powerful army that has shorn away much of his power, suggested he had reached an agreement with the generals to end more than a year of policy paralysis.

That agreement may be challenged by a decree Mursi issued on Sunday that parliament, which the military had ordered dissolved based on a court ruling, should reconvene.

A stand-off between Mursi's Muslim Brotherhood and the army-backed interim government had been putting a brake on efforts to secure billions of dollars in emergency foreign funding to fend off a balance of payments crisis.

"The probability of a deal with the IMF being finalised by the end of the year has increased significantly now that a democratically elected administration is in place," said Youssef Kamel, a Cairo-based fixed-income analyst at Rasmala.

"This would open the door for more external aid materialising, thereby easing the government's fiscal difficulties and reducing pressure on yields." These difficulties had been eased somewhat in the last few weeks after Saudi Arabia agreed to lend Egypt almost $3 billion for budget support and project funding.

The Saudi package included a $1 billion, eight-year deposit with the central bank and another $500 million to buy Egyptian treasury bonds.

The Saudi-based Islamic Development Bank (IDB) also agreed to provide $1 billion to finance energy and food imports.

At a treasury bill auction on Sunday, average yields declined at a sale of 6.5 billion Egyptian pounds ($1.07 billion) of 91-day and 273-day T-bills, the Central Bank of Egypt said.

The average yield on the 91-day T-bills was 14.498 percent, down from 14.735 percent at the last issue on June 19. On the 273-day bills it was 15.789 percent, down from 15.907 percent at last week's auction.

The central bank, which sells the bills on behalf of the Finance Ministry, sold the same amount it had offered.

Kamel said a drop in the yield on a 10-year, 5.75 percent Egyptian eurobond to its lowest since mid-November was a sign of investor optimism, as was a drop in the cost of insuring Egyptian debt.

Copyright Reuters, 2012


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Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
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Trade Balance $-1.558 bln
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WeeklyJuly 10, 2014
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