Egypt cancels five and ten-year treasury bond sales for the second time in a week

Reuters , Monday 10 Sep 2018

Central Bank of Egypt
Central Bank of Egypt's headquarter is seen in downtown Cairo, Egypt, November 3, 2016. (photo: Reuters)

Central Bank of Egypt (CBE) data showed on Monday that five and ten-year treasury bond sales worth EGP 3.5 billion ($195.4 million) were canceled after banks and investors demanded high interest rates.

This is the second time in a row that Egypt has canceled sales for bonds due to demand for high interest rates that Egypt sees "illogical", the Finance Ministry said when canceling sales for three and seven-year bonds last week.

Two banks, one of which took part in an auction this week, said banks and investors had requested return rates ranging between 18.40 and 18.60 percent.

It was not immediately clear whether the Ministry of Finance and the Central Bank would issue the bonds again in a private auction, like last week, when the National Investment Bank (NIB) bought the bonds in a private auction.

Egypt's Ministry of Finance said in a press release last week when canceling T-Bonds sales that the required interest rates "do not reflect the good economic and financial performance nor improved credit ratings, and were mainly affected by the risks associated with emerging markets."

"How can the government buy at those rates for 10 years? We want to reduce the budget deficit rather than increase it. It is best to focus on treasury bills in the upcoming period," a banker told Reuters on condition of anonymity.

"The message is very clear from the Ministry of Finance and the Central Bank: We will not buy at those figures."

In line with that, the average yield on 91-day treasury bills rose to 19.31 percent from 19.18 percent in the previous auction, while the 266-day bills' return rose to 19.63 percent from 19.55 percent in the previous auction.

On Sunday, Egypt sold 91-day treasury bills worth EGP 5.632 billion ($314.5 million), although it had previously announced its intention to sell EGP 8.5 billion of this item.

However, 266-day bills worth EGP 11.776 billion were sold, exceeding its previously announced target of EGP 8.250 billion.

Traders in Egypt's capital market told Reuters on Sunday that the reason for Egypt's resort to selling more than 266-day treasury bills than its target was to "avoid refinancing before the end of 2018."

"Foreigners are unlikely to return to buying strongly before the new year begins," said a trader in the capital market.

Egypt aims to reach an average interest rate on government debt instruments in the current 2018-2019 fiscal year to about 14.7 percent compared to 18.5 percent in fiscal year 2017-2018, which ended on June 30.

Egypt's funding needs in 2018-2019 fiscal year are about EGP 714.637 billion, of which EGP 511.208 billion should come from domestic debt instruments and the rest should be external financing from bond issuances and the International Monetary Fund (IMF) loan.

Foreign investments in government debt instruments have reached $17.1 billion since the floatation of the Egyptian currency in November 2016 until the end of July 2018. This is lower than the $23.1 billion recorded at the end of March 2018.


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