Goldman Sachs sees Egypt’s 10-year bonds ‘extremely attractive’ on rate cuts

Egypt’s 10-year bonds will become an “extremely attractive” option for investors looking for higher yields as the country starts key interest rate cuts, said a Goldman Sachs official said on Wednesday.

The Central Bank of Egypt (CBE) cut last week key interest rates by 150 basis points for the first time since February. It cut the overnight deposit rate to 14.25 percent from 15.75 percent and the overnight lending rate to 15.25 percent from 16.75 percent.

The cooling inflation in Egypt means that real interest rates stand out among regional and emerging market peers, Goldman Sachs’ vice president for MENA economics research Farouk Soussa told Bloomberg TV.

Investing in long-term bonds “tends to be a bit more sticky,” Soussa said. But “the liquidity in the Egyptian market has improved to the extent that our clients are now able to trade in and out of those trades and it makes it much more attractive,”

Soussa expects short-term interest rates to continue coming down, but said portfolio money is unlikely to “rush out of the Egyptian market.” Instead, portfolio investments will stick around and “may even build up going forward,” which will bode well for the Egyptian pound and could lead to further appreciation of the currency.

Average yields on 10-year treasuries fell to 14.682 percent in an auction on Wednesday, down from 15.551 percent in an auction earlier this month, according to a central bank data. Yields on 10-years in the secondary market dipped to 15.36 percent, retaining Egypt’s position as offering the second highest return on 10-year bonds in the world, after Turkey.