Egypt’s central bank issued about twice the volume of three-year and seven-year treasury bonds on offer at an auction on Monday, as strong demand kept yields mostly unchanged two weeks after they hit a 10-month high.
The bank had accepted only a fraction of the bids on the maturities at their last auction in July. Yields then jumped more than 1 percent, following a surprise 100-basis-point increase in interest rates.
Egypt wants to reduce borrowing costs as it tries to revive an economy battered by more than three years of political turmoil. It also needs to reduce its budget deficit, which hit 12 percent of gross domestic product in the fiscal year that ended in June.
The state is also trying to contain inflation, which is expected to rise this month after the government cut subsidies on fuel and electricity in July and sent energy prices surging.
Monday’s auction results showed the government was “trying to compensate for the amounts they didn’t raise because they’re fighting yields,” said one Cairo-based fixed income trader.
Egypt accepted bids worth 3.67 billion Egyptian pounds(513.29 million US dollar) for three-year bonds, compared with 1.5 billion pounds offered. The average yield was down at 13.924 percent from 13.971 percent two weeks earlier.
Egypt accepted bids worth 919 million pounds for seven-year bonds compared with 500 million pounds offered, with yields up slightly to 15.824 percent from 15.781 at the previous auction.
The bid-to-offer ratio for the three-year and seven-year bonds was 2.97 and 4.61, respectively.
Egypt had accepted binds for 5.98 billion pounds worth of 357-day treasury bills at their last auction on Thursday after offering 4 billion pounds.
But it was not clear how long the government could maintain yields at similar levels.
“Normally, it’s effective in the very short term, but unless there’s a change in fundamentals or a change in inflation expectations, it’s not usually sustainable,” the trader said.