Egypt Default Risk Falls to Lowest Since May as Gulf Aid Flows

Egypt’s default risk dropped to the lowest level in more than three months as the central bank governor said the country would receive more aid. Local borrowing costs fell to the lowest since 2011.

Five-year credit default swaps, contracts which insure the nation’s debt against default, fell 63 basis points to 638, the lowest level since May 31, at 4:07 p.m. in Cairo, according to data provider CMA. The government sold one-year treasury bills at an average yield of 11.54 percent, the lowest since the start of the country’s January 2011 uprising on bets the central bank will cut interest rates when it meets next week.

Egypt expects to receive $2 billion from Kuwait next week, Governor Hisam Ramez told Arabiya TV yesterday, adding to $5 billion secured from Saudi Arabia and United Arab Emirates in July. The funds have helped boost foreign reserves and bolster the Egyptian pound after six months of declines. Egyptian default swaps are down 263 basis points since the ouster of President Mohamed Morsi on July 3, compared with a 51-basis point drop for the average of 10 Arab countries tracked by Bloomberg.

“The disbursement of Gulf aid and the promise of more to come is central to the market gains,” Simon Williams, Dubai-based senior economist at HSBC Bank Middle East Ltd., said by e-mail. “Market fears over the political outlook may have also started to ease, but they have not gone away.”

More than two months after Morsi’s ouster, protests by his supporters have failed to derail the military’s plan to hold parliamentary elections by the first quarter of next year. Interim President Adly Mansour yesterday appointed a commission to supervise elections after a panel charged with amending the constitution started work this week. Morsi’s backers are calling for more protests tomorrow.

Scarce Trades

There were two trades covering $10 million of Egypt’s debt in the week through Sept. 6, contrasting with 75 trades covering about $103 million of Abu Dhabi debt in the same period, according to Depository Trust & Clearing Corp. data.

The average yield on the nation’s 12-month t-bills tumbled 89 basis points at today’s auction as bids reached 3.4 times the amount offered, according to Finance Ministry data. The yield on the six-month notes dropped 90 basis points to 11.3 percent. EFG-Hermes said in a report today it expects the central bank to cut benchmark rates by 50 basis points to stimulate the economy, after inflation eased in August. The regulator had reduced rates last month for the first time since 2009.

The pound was little changed at 6.8942 a dollar after the central bank sold $38.6 million at a currency auction. The currency has strengthened 1.9 percent since Morsi’s ouster.

The yield on the $1 billion of the nation’s benchmark 5.75 percent Eurobonds due in April 2020 fell 14 basis points to 8.07 percent, according to prices compiled by Bloomberg. That takes their decline this month to 81 basis points, compared with an increase of three basis points for the average of Middle East sovereigns to 5.49 percent through yesterday, according to HSBC/NASDAQ Dubai indexes.

Source: Bloomberg