CAIRO: Yields on short-dated Egyptian treasury bills fell to their lowest since November 2011 at an auction on Sunday as growing expectations of more aid for Egypt's struggling economy drew local investors trying to lock in high returns.
Optimism has grown that the government formed by new President Mohamed Mursi may secure enough funds from foreign donors to stave off a balance of payments and budget crisis after 1-1/2 years of economic turmoil.
It has accelerated talks on a $4.8 billion International Monetary Fund loan. Saudi Arabia and Qatar have pledged support worth billions of dollars.
Prime Minister Hisham Kandil told Reuters on Sunday, after submissions for Sunday's T-bill auction had closed, that he expected to conclude an IMF deal within two months and was in talks for further budget support from the World Bank and African Development Bank worth $1 billion.
In a rare interview, Kandil said he was finalising economic reforms that would rein in hefty subsidies and forecast the economy would grow in the financial year to June 2013 by 3 to 4 percent or more if investment goals are achieved.
CIBC equity trader Ashraf Akhnoukh said: "That's actually great news and I think its one step closer to stability. Once this is approved by the president and the project actually starts, I think interest from investors is going to increase dramatically and international inflows should increase as well."
Kandil's comments came after a weeks-long rally by Egyptian stocks, driven mainly by local investors, took its main equity index up 50 percent this year.
"I found the statements to be very positive as they indicate that the government is serious about moving forward with budget reforms," said Youssef Kamel, a fixed-income analyst at Rasmala. "This should add to the positive sentiment being felt in markets."
Foreigners, largely absent from Egypt's debt market since the overthrow of Hosni Mubarak in February 2011, bought 20 percent of a euro-denominated treasury bill issue on Aug. 28, according to the central bank.
The yield on Egypt's eurobond maturing in 2020 is close to its lowest since the uprising, while analysts cited reports that foreigners have been buying short-term treasuries in the secondary market.
"We can expect increased demand and consequently lower yields for longer dated local currency securities as investors attempt to lock-in the historically elevated yields due to the higher probability of external aid materialising," said Kamel.
The average yield on 1 billion Egyptian pounds ($164.09 million) of 91-day bills fell to 13.747 percent on Sunday, its lowest since Nov. 22, from 14.15 percent at an auction on Sept. 2.
The average yield on 3.5 billion pounds of 266-day bills fell to 15.486 percent from 15.863 percent at an auction on Aug. 26. That was the lowest since Jan. 10.
The central bank sold all the bills it had offered on behalf of the finance ministry.
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