x Abu Dhabi, UAEFriday 21 July 2017

Growing chaos threat to Egypt bond market

What's Down: Egypt plans to raise 5.5 billion Egyptian pounds of debt amid concern that unrest may escalate.

Egypt plans to raise 5.5 billion Egyptian pounds of debt amid concern that unrest may escalate as supporters of the president Mohammed Morsi prepare to march on Tahrir Square, where his opponents are camping.

The country is seeking bids for 2bn pounds of six-month notes and 3.5bn pounds of one-year securities, according to central bank data. It sold similar-maturity bills last week at average yields of 12.73 per cent and 12.9 per cent.

The government's local-currency borrowing costs have climbed since Mr Morsi's decree last week to grant himself sweeping powers sparked nationwide protests.

"Taking into account the non-stop protests and possible face-off over the weekend, the market is scared of the escalation and lack of visibility," said Moustafa Assal, the managing director of Bondlink Advisory in Cairo, which trades government securities. "Banks are now in crisis-management mode."

Thousands of Mr Morsi's opponents, who likened his decree to the policies of the Hosni Mubarak regime, are holding a sit-in at the central plaza tomorrow, while his Islamist supporters will stage a rally there as well.

The finance ministry cancelled an auction of treasury bonds this week for the first time in six months as yields rose.

If the government does not cancel today's sale, yields could rise by about 50 basis points, or 0.5 of a percentage point, said Mr Assal.

The mid-yield on one-year notes in the secondary market increased 27 basis points this week.

The yield on the 5.75 per cent dollar-denominated bonds due in April 2020 was little changed at 5.18 per cent yesterday afternoon. It rose six basis points this week. The pound, subject to a managed float, weakened 0.1 per cent to 6.1115 per US dollar, bringing its weekly retreat to 0.3 per cent.