Egypt seeks to approach JPMorgan to join EM Bond Index

Egypt is planning to approach JPMorgan Chase & Co. for inclusion in its emerging-market bond indexes to boost inflows from overseas institutional investors into its domestic debt market, three people familiar with the matter said.

While the government has yet to approach JPMorgan, it’s taking steps to ensure its debt is eligible for inclusion over the next year, said the people, who declined to be named as the information isn’t public. JPMorgan declined to comment. Finance ministry officials did not immediately respond to requests for comment.

The plan comes after foreign demand for Egyptian pound-denominated debt waned amid a sell-off in risky assets. More than $6 billion flowed out of local treasury bonds and bills in the three months from the end of April as volatility swept across emerging markets.

Falling demand for Egyptian domestic bonds has spurred an increase in yields, adding to debt servicing costs just as the country is seeking to curtail its deficit. Egypt has canceled all four Treasury bond auctions this month after investors demanded higher yields than it was willing to pay.

The government is hoping that inclusion in the JPMorgan index will encourage passive inflows and help ease the debt servicing burden, the people said.

inance Minister Mohamed Maait said in an interview earlier this month that the government was in talks with Belgium-based Euroclear to settle its domestic debt transactions.

Investors currently have to go through local banks to clear transactions in treasury bills and bonds. The people said ensuring cross-border domestic debt purchases could be cleared efficiently would also help facilitate Egypt’s inclusion in the index.

Saudi Arabia and four other Gulf countries will become eligible for inclusion in JPMorgan’s emerging-market bonds indexes from the end of January, potentially attracting billions of dollars in passive inflows.

source: Bloomberg