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Egypt default risk highest since January after embassy attack

Storming of Israeli embassy comes on top of country's recent liquidity woes, prompting a surge in credit swap trade as buyers bet on Egypt defaulting on its bond payments

Ahram Online, Tuesday 13 Sep 2011
Israeli embassy
Smoke signals: Egypt's risk of default seems to be rising in the wake of the weekend's events (Photo: AFP)
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Egypt’s default risk climbed to the highest level in more than seven months in the wake of the weekend storming of the Israeli embassy in Cairo, as credit default swaps saw heavy interest.

In Monday trade, the cost of five-year contracts against the country missing a payment on its bonds surged 25 basis points to 423 -- a 0.25 per cent climb -- according to prices from Credit Market Analysis (CMA). 
 
This marks the highest level since 31 January when nationwide protests brought Egypt to a halt, in a sign of how increased Egyptian-Israeli tensions are shaking investor confidence. But other factors were also involved, say commentators.
 
"We are seeing [the climb in default risks] across all emerging markets, although there are local factors at play too," said Hany Genena, senior economist at Pharos Holding. "Liquidity is tightening in Egypt and the cost of government borrowing is increasing -- all of these triggered the rise."
 
Last week Egypt's finance ministry let the yield rate on its sale of one-year treasury bills surge 62 basis points to 13.60 percent, the highest since November 2008. On Sunday, the ministry stopped the sale of three- and nine-month securities after deeming the yields investors asked for as too high.
 
The cost of protecting government debt against default for five years was 398 points on 9 September, according to CMA, which collects prices quoted by dealers in the privately negotiated market.  This was a significant climb on a post-uprising low of 292 points on 8 June.
 
Greece and Venezuela are the world's two most expensive nations to 'insure', according to information from credit analysts Markit.
 
The last country to trigger a payment through credit default was Ecuador in 2008.
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