Egypt attracts solid demand for 7-year government bonds

Egypt attracts solid demand for 7-year government bonds

Egypt attracted solid demand at an auction of seven-year treasury bonds on Monday amid optimism that foreign donors will help ease the country's fiscal crisis, traders said.

March 6, 2012 10:57 by Reuters

The army-backed government hopes to secure $3.2 billion of funding from the International Monetary Fund soon as it moves to bring borrowing back under control after last year’s popular uprising.

If it pulls off an IMF deal, that could encourage other lenders to provide further funds.

“That is why appetite (for government debt) is increasing. People don’t want to miss the opportunity if the trend continues,” said a senior trader at a Cairo bank.

The central bank said it sold 1 billion Egyptian pounds ($165.8 million) of the reopened seven-year bonds, the same amount it had asked for.

Yields ranged from 16.80 to 16.93 percent, compared with 16.85-16.95 percent at an auction of seven-year bonds on Feb. 20, when the bank raised less than half the amount it sought.

The average yield at Monday’s auction was 16.91 percent.

Traders said bids were equivalent to 1.8 times the value of the sale. The bonds mature on Oct. 25, 2018, and carry a 14.5 percent coupon. Settlement will take place on March 6.

Egypt has received a fraction of the financial aid pledged by foreign donors after the uprising against Hosni Mubarak hammered the economy and an unpopular government faces a tough task selling austerity measures to the public and parliament.

Yields on government debt reached unsustainable multi-year highs in recent months as foreign investors waited on the sidelines, and several treasury auctions were undersubscribed.

The central bank has supported liquidity in the banking system by raising its benchmark Egyptian pound deposit rate, and yields on short-term debt edged lower at recent auctions.

“This time there is a higher probability of reaching a deal” with the IMF and other lenders, said the Cairo banker. “But if any political accidents happen again, I think we will be in trouble again, and this is a variable that we need to build in all the time now.” ($1 = 6.03 Egyptian pounds) (Reporting by Tom Pfeiffer and Mohamed Samir; Editing by Hugh Lawson)