Egypt records biggest yield drop since revolt

The biggest drop in Egypt's borrowing costs since the start of protests that toppled former President Hosni Mubarak last year is fuelling speculation the government will sell longer-term debt to meet financing needs.

The average yield on one-year Treasury bills fell 15 basis, the most since January 2011, to 15.768 per cent in an auction of 3.5 billion Egyptian pounds (Dh2.1 billion) of notes Thursday, according to central bank data on Bloomberg. Yields that had climbed to a record 16 per cent last year fell after the central bank allowed lenders to free up more funds.

A lack of demand forced the government to cut the average maturity of its local debt to 1.3 years at the end of last year from 1.7 years in December 2010, according to Finance Ministry data. Egypt's banks bore the brunt of government financing after foreign investors dumped local securities following the uprising that ousted Mubarak, while four credit rating cuts by Moody's Investors Service effectively shut the country out of global bond markets.

"There is a lot of liquidity in the market now and this could encourage the government to issue" longer-term maturities, Mustafa Assal, the head of fixed income at Cairo-based investment bank Beltone Financial Holding, said by phone. "There is a window of opportunity. For how long? I don't know."

Public banks increased their holdings of treasury bills last year by 34 per cent to 100.7 billion pounds, according to the most recent central bank data. Foreign investors reduced theirs by 51.5 billion pounds.

A potential loan programme with the International Monetary Fund that the government requested in January needs "broad political support," David Hawley, a spokesman for the lender, said Thursday in Washington.