Egypt raised 13 billion Egyptian pounds (Dh8.01bn) yesterday through a sale of treasury bills at yields inflated by the political crisis that has engulfed the country over the past two weeks.
The government had postponed planned debt sales because of protests and unrest that the UN estimates has left more than 300 people dead. As banks reopened briefly on Sunday and regulators announced the resumption of trading on the Cairo Stock Exchange next week, the debt sale was seen as an attempt to restore a semblance of order to the country's battered finances.
The treasury bills Egypt sold yesterday mature in three, six and nine months, and all come with yields exceeding 11 per cent, an unusually high level for short-term government debt.
The three-month debt carries an average yield of 11 per cent, while the average yield on the six-month debt is 11.48 per cent, and the nine-month debt's average yield is 11.66 per cent. Higher yields reflect investors' heightened perceptions of risk.
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Local banks are thought to have snapped up most of the debt. While the yields are high, offering the potential for strong returns, foreign investors are concerned about the additional risk of investing in assets denominated in Egyptian currency, said Ahmad Alanani, the director of fixed income sales in the Mena region at Exotix in Dubai.
The Egyptian pound has fallen by 2.2 per cent against the US dollar in recent days. "I don't think foreigners are going to come in," Mr Alanani said. "There's too much foreign exchange risk involved."
Nick Beecroft, a senior markets consultant at Saxo Bank, also said the auction would be taken up "almost completely if not 100 per cent by the local banks".
"They will demand a higher return because of the extra risk in the country," Mr Beecroft said.
Egypt's central bank has successfully intervened in markets in the past to control the value of the pound, but concern is rising that fleeing investors taking cash out of banks and markets in Egypt could lower the central bank's foreign reserves, which a government official recently said stood at US$36bn (Dh132.22bn).
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Moody's Investors Service said in a note yesterday the risk of capital flight and bank runs was "not all that material" as the value of foreign deposits was negligible compared with deposits from locals.
Nevertheless, Moody's said local analysts estimated "around $1.5bn of foreign money placed in Egyptian government securities has already left the country despite the closure of the stock exchange as well last week". Hisham Ramez, the Egypt central bank deputy governor, told Bloomberg yesterday that foreign investors had sold even more than that, including $1.7bn of treasury bills.
While yesterday's treasury bill auction showed the economic impact of Egypt's political turmoil, there are other signs that investor perceptions about the country are stabilising. Egyptian government bonds that mature in 2040 fell sharply at the end of last month but have since risen by 4.8 per cent, according to Bloomberg figures.
Credit default swaps, which measure the cost of insuring against the default of government debt, have also been decreasing. They have fallen by more than 11 per cent since the end of last month.