CAIRO: Egypt’s decision to issue more dollar-denominated treasury bills helped drive yields on its dollar eurobond higher on Wednesday as the army-backed government sought to stave off the risk of a budget crunch.
The central bank said on Tuesday it would offer $1 billion in dollar-denominated one-year T-bills at an auction next week, its second dollar offering in less than a month, as the government struggles to finance a growing deficit.
That followed a grim warning from Prime Minister Kamal El-Ganzoury on Sunday that the country’s economic situation was worse than anyone imagined and austerity was required to reign in a burgeoning budget deficit.
The yield on a 5.75 percent Egyptian eurobond maturing in April 2020 surged to 7.8995 percent on Wednesday. It reached as low as 5.3325 percent in September after peaking above 7.12 percent during a popular uprising that unseated Egypt’s president in January.
"With the dollar treasury bills, there is more supply out there of dollar assets," said Gabriel Sterne, economist at frontier markets broker Exotix.
He said the lack of Egypt external debt was a good thing, but it meant that more dollar-denominated debt arriving on the market made for competition with its eurobonds.
Egyptian market watchers welcomed the latest comments from El-Ganzoury, which they said suggested a shift of emphasis from social welfare spending to deficit reduction.
Analysts say a peaceful start to a parliamentary vote has given the new government some breathing space to tackle weak law and order and a floundering economy that its predecessor was blamed for neglecting.
But they say it must move quickly to draw fresh foreign funds to stave off a budget crunch, including a $3 billion financing facility from the International Monetary Fund.
Yields on Egyptian pound T-bills have soared to multi-year highs as local banks exhaust their liquidity and political turmoil scares off foreign investors.
"Egypt on the basis of its rating still doesn’t look particularly cheap," said Sterne. "I would say that maybe markets are still worried (although) external debt is really low, the bond doesn’t mature till 2020, there is no imminent danger of default and there is a possibility of an IMF program."
