By Tom Pfeiffer / Reuters
CAIRO: Yields edged lower at a sale of Egyptian treasury bonds on Monday, and traders said banks had demanded more than the amount offered due to growing confidence in the country’s democratic transition.
Yields have eased at recent auctions although they remain near multi-year highs partly due to the absence of foreign investors since a popular uprising last year that has left the state reliant almost entirely on local banks for financing its debt.
An increase in benchmark deposit rates late last year, which brought local banks more liquidity, and tentative optimism that the government can overcome a fiscal crisis caused by the uprising have helped spur more demand at auctions.
Banks may also be buying into longer-term government securities in the expectation that yields will come down after the central bank last week cut reserve requirements on local currency deposits to 12 percent from 14 percent.
The new policy will release as of April 17 about 9 billion Egyptian pounds ($1.5 billion) that had been sitting idle at the central bank and that banks will be able to lend both to the government and to business.
“I think we’re now on a downward trend in yields, and that’s going to mean lots of demand in coming auctions,” said a fixed-income trader in Cairo who asked not to be identified.
Egypt’s ruling army council, which has promised to hand power to civilians by mid-year, on Sunday defended its handling of the political transition against withering attacks on the army-backed government by the Islamist-dominated parliament.
Islamists and liberals have also been battling one another over the make-up of a constituent assembly that was formed to write a new constitution.
Security in Egypt has been fragile since the uprising that ousted former president Hosni Mubarak. Clashes erupted over the weekend between security forces and football fans protesting against an order to suspend their club.
Such tensions “are having no effect yet on the treasury market and they won’t until something really substantial happens,” said the trader.
The average yield on three-year bonds auctioned on Monday fell to 16.25 percent from 16.36 percent at a similar sale on March 12.
The central bank sold all 2 billion pounds of the bonds it had offered. The bonds mature on Jan. 17, 2015 and carry a coupon of 16.15 percent.
It sold the full allotment of five-year bonds with the yield slipping to 16.69 percent from 16.78 percent at the last such auction. The bonds mature on Jan. 17, 2017 and have a coupon of 16.35 percent.
Settlement will take place on March 27.
Government bonds are sold by the central bank on behalf of the finance ministry.
Poor liquidity has helped keep yields on Egypt’s locally denominated treasury debt high, but the yield on one of its most liquid dollar bonds has tumbled to 6.3 percent from as high as 8.3 percent in January. –Additional reporting by Patrick Werr and Mohamed Samir