Egypt T-Bill Yields Jump Most In Two Years On Budget Needs, S&P

Egypt’s local-currency borrowing costs surged the most in more than two years as the government was forced to accept investor demands for higher yields to finance its budget and after a Standard & Poor’s rating cut.

The Arab country raised the 5 billion Egyptian pounds ($719 million) it sought at a treasury-bill auction today, according to Finance Ministry data. The average yield on nine-month notes jumped 96 basis points, or 0.96 of a percentage point, to 14.7 percent compared with an auction two weeks ago. That on three-month bills increased 91 basis points to 13.93 percent, with both yields gaining the most since February 2011.

Egypt is trying to finance a budget deficit that may widen to 11.7 percent of economic output in the year that ends in June, former Finance Minister El-Morsy Hegazi said last month. The government’s inability to come up with a plan to manage its financing needs prompted a cut by S&P last week to CCC+, the second-lowest of any country the agency rates.

“The government is being forced to accept high yields because it has to cover the deficit as the fiscal year draws to a close next month,” Amr Seif, chief dealer at Piraeus Bank Egypt, said by phone. “Bidders for the debt realize they have this leverage and are also preempting further interest rate hikes because of rising inflation.”

Egypt’s central bank decided May 9 to keep benchmark interest rates unchanged even after a government report showed annual inflation accelerated to 8.1 percent in April from 7.6 percent a month earlier. The regulator had raised rates in March for the first time in 16 months to combat rising prices.

Higher Yields

The government, seeking a $4.8 billion loan from the International Monetary Fund, is looking to lower its deficit to 9.5 percent of gross domestic output next fiscal year. Talks of more than two years with the fund have failed to result in an agreement.

The yield on Egypt’s $1 billion of benchmark 5.75 percent Eurobonds due in April 2020 advanced 10 basis points in two days following S&P’s cut to 7.26 percent on May 10, according to prices compiled by Bloomberg. The pound was unchanged at 6.9563 a dollar as of 3 p.m. in Cairo, having lost 11 percent since the central bank started scaling back support for the currency in December.

Bloomberg