Foreign investors buy up Egyptian local currency debt

Foreigners are back to gobble up Egypt’s local-currency debt. Overseas investors bought 100% of five-year bonds on Monday, as Egypt offers one of the highest yields in emerging markets

It appears foreign investors can no longer resist the allure of some of the juiciest yields in emerging markets, says a Bloomberg report.

In debt auctions held this week, they bought 30 percent of Egyptian local-currency Treasury bills and more than half of longer-dated bonds, the Ministry of Finance said in a statement on Tuesday. They acquired all of the five-year securities sold a day earlier, in what the ministry labeled a clear sign of confidence in the country’s economy.

After pulling out about $10 billion from Egypt during a global selloff last year, foreign investors are back to capture the highest yields in emerging markets after Argentina, according to a Bloomberg Barclays index. The average yields in Monday’s sale dropped 44 basis points, the most in a year, to 17.59 percent, data compiled by Bloomberg show.

The demand is probably driven by an anticipation that the central bank could start cutting interest rates as inflation eases, according to Reham El Desoki, a Cairo-based economic consultant. Investors also “perceive lower risk in the medium-to-long term, which is positive,” she said.

The ministry’s announcement comes a day after the Egyptian pound surged the most in almost two years. The currency, which investment bank EFG-Hermes says has become more sensitive to fund flows after the central bank ended a repatriation mechanism for foreigners late last year, gained 1.5 percent to 17.6287 against the dollar, according to prices compiled by Bloomberg.

Central bank Governor Tarek Amer told Bloomberg last week that the stagnant exchange rate is likely to see more movement after a system that guaranteed foreign investors could repatriate dollars was terminated.

He said the central bank stands ready to fend off speculators and ensure debt holders don’t lose out.