Since a popular uprising unseated Egypt’s president in February 2011, the government has turned to the domestic market to finance a widening budget deficit, squeezing the lending ability of local banks.
One of the first decisions any new government will have to take is whether to go ahead with long-delayed talks with the International Monetary Fund for an emergency foreign currency loan that could relieve pressure on domestic interest rates.
“Nothing special in the market to be honest other than waiting for the election,” said a trader at a Cairo-based bank. “As it gets closer, players feel more uncomfortable bidding in the auction and, accordingly, yields have increased over the last two weeks.”
LOCKING IN YIELDS
A fixed-income analyst said at least some investors were locking their funds into longer periods to take advantage of the high rates.
“The T-bill auction results show increasing demand for the longer maturity securities over shorter maturities,” said Youssef Kamel, a Cairo-based fixed-income analyst at Rasmala.
The average yield on 357-day T-bills also rose at Thursday’s auction, but at a slower pace than the 182-day bills. The yield climbed to 15.882 percent, its highest since March 13, from 15.748 at the last issue on May 8. The bank sold 3.5 billion pounds, the same amount it had sought.
“The sentiment in the fixed-income market at the moment seems to be that if the elections go by smoothly, and external aid begins flowing, the current (high) yields will be long gone, at least in the short term,” Kamel said.
The Egyptian pound was bid at 6.046 to the U.S. dollar, its weakest closing price since January 2005.
Traders said the central bank has been keeping Egypt’s currency within a range of 6.030 to 6.047 to the dollar over the last few weeks, but now might be preparing to allow it to edge down.
“I think it is a managed move till now, as volume is quite little – only $140 million,” and much of this was corporate demand, the bank trader said.
“So maybe CBE is trying to move on the next level of gradual depreciation and to get out of range. But in general we are still within the range.”
Since the uprising, which chased away many dollar-toting tourists and foreign investors, the central bank has allowed the pound to fall by 3.8 percent against the dollar.
In equities, Egypt’s benchmark share index extended its losses for a fourth day on Thursday, falling 1.3 percent, also on election jitters.
“Investors are shying away from taking any critical decisions,” said Osama Mourad of Arab Finance Brokerage. “Some of the candidates have also recently been talking about imposing capital gains taxes, which has investors worried.”
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Reuters