Egypt Yields Fall to 3-Month Low as Military Plan Gains Momentum

Yields on Egypt’s benchmark Eurobonds fell to the lowest in more than three months as the military’s road map gained momentum 10 weeks after the overthrow of President Mohamed Morsi.

The 5.75 percent notes due April 2020 rose for a fifth day, pushing the yield down 14 basis points, or 0.14 of a percentage point, to 8.24 percent at 3:55 p.m. in Cairo, according to data compiled by Bloomberg. That takes the drop since Morsi’s ouster July 3 to 253 basis points.

Egyptian bond yields are bucking the rising trend of Middle East and emerging-market sovereigns this month as the country moved closer to parliamentary elections by starting to amend its constitution. The vote is schedule to take place in the first quarter of next year despite violence that has claimed the lives of more than 1,000 people in the aftermath of Morsi’s ouster.

“As long as Egypt remains off the global TV screen, the bonds will do well because people get more confidence that there will be a stable solution to the political crisis,” Gabriel Sterne, senior economist at London-based Exotix Ltd., said by phone. “But you still have to wonder how any real vote that reflects the will of the Egyptian people can get around the popularity of the Islamists.”

Islamists won more than 70 percent of seats in the country’s 2012 parliament. The Muslim Brotherhood, the country’s biggest Islamist group and the main supporters of Morsi, has remained defiant of the military government despite a violent crackdown by security forces and arrests of its top leaders. It has rejected the military’s plan and vowed to continue street demonstrations until Morsi is restored to office.

Sovereigns Increase

The yield on Egypt’s 2020 notes is down 64 basis points this month. That compares with a seven basis-point increase for the HSBC/NASDAQ Dubai Middle East Conventional Sovereign US Dollar Bond Index to 5.53 percent yesterday. JPMorgan Chase & Co. (JPM)’s Emerging Markets Bond Index, reflecting sovereign yields, rose four basis points in the same period to 6.2 percent.

The Egyptian pound was little changed at 6.8953 a dollar in interbank trading, according to BNP Paribas MENA prices, after the central bank sold $38.8 million at a currency sale. The regulator received 6.8853 pounds for dollars compared with 6.8855 pounds on Sept. 9, according to its data on Bloomberg.

The pound is up 1.3 percent over the past week following the central bank’s record $1.3 billion auction, paring the currency’s decline since the start of the sales in December to 10 percent.

Source: Bloomberg