(Adds details and quotes)
Feb 12 Foreign investors supported a rally on
the Egyptian debt market, pushing the yields on the three-month
and nine-month treasury bills lower on Sunday.
Egypt used to attract significant inflows, around $11
billion, into government bonds and bills before the 2011
uprising drove off foreign investors. The central bank's
decision to float its pound currency in November has helped
revive foreign inflows into Egyptian treasuries.
Foreign investment in Egyptian treasuries doubled to $500
million in January from December, Egypt's deputy finance
minister said last week.
Yields had begun to drop at Egypt's weekly treasury debt
auctions since the end of January as demand for the debt rose
but the pace picked up last week as foreign investors' appetite
for treasury bills spiked, pushing down yields by around 2
percent on Thursday.
Yields on the 91-day bills fell on Sunday to an average of
17.050 percent from 18.621 percent at the previous auction while
yields on the 266-day bills fell sharply, to 16.993 percent from
18.857 percent at the last similar auction.
About 2.2 billion Egyptian pounds ($125.36 million) of the
treasury bill sale on Sunday went to foreign buyers, with 18
percent of the 91-day and 30 percent of the 266-day bill, Samy
Khallaf, head of public debt in Egypt's Finance Ministry, said.
"This decline in yields follows a previous decline so it's a
big drop and this is mainly from foreign investor interest...
For foreigners these rates don't exist anywhere else," said one
Foreigners have been buying more T-Bills because "they could
be expecting a rate cut coming," Allen Sandeep, head of research
at Naeem Brokerage, said, referring to Egypt central bank rates,
a meeting for which is scheduled for Thursday.
"They are buying now when the Egyptian pound is still weak,
so they gain on the interest and currency," Sandeep added.
Egyptian banks, which once considered treasury debt yields
as a safe and high-yielding investment, say the quick drop in
yields is causing them to lose interest as the yields are coming
closer to the central bank's corridor rates.
Bankers calculate that their treasury bill investments may
now provide lower profitability, after deducting taxes, than the
central bank's corridor rates and as a result there may be less
appetite for them from Egyptian banks.
Egypt's overnight deposit rate is 14.75 percent and its
overnight lending rate is at 15.75 percent.
"The decline in yields is rapid and aggressive and I believe
it can continue. Historically foreign investors used to buy
Egyptian local debt since the previous managed float and yields
used to drop below the corridor rate," another treasury banker
who covers the Egyptian debt market said.
He recalled 2006 when the corridor rate was around 8
percent some treasury yields went down as low as 6 percent and
they were mainly bought by foreign investors.
"We think there is a possibility to start seeing this again,
The time frame is not yet clear but at this pace they are going
there," he said.
Egypt's monetary policy meeting is due to meet on Thursday
to decide on its key interest rates. The central bank kept its
rate on hold during its last two meetings following a 300 basis
point hike on Nov.3 when it floated the pound.
Most of the dollars coming in through investors in Egyptian
debt or stock market go through the central bank's repatriation
mechanism, bankers said, meaning the liquidity does not actually
enter the Egyptian banking system.
Still the pound has strengthened since the float as backlogs
of U.S. dollar orders to finance imports had eased and some
confidence in the Egyptian pound returned.
The Egyptian pound strengthened further on Sunday, to around
17.5 per dollar from 17.75 on Thursday.
"The pound strengthening in the interbank is mainly driven by
more supply than demand at banks. All banks have, to a great
extent, covered big portions of their backlogs of imports," the
($1 = 17.5500 Egyptian pounds)
(Reporting by Asma Alsharif, additional reporting by Eric
knecht; Editing by Toby Chopra and Stephen Powell)