No significant decline expected in T-bonds demand after interest rate cuts: EFG Hermes

Mohamed Samir
3 Min Read

EFG Hermes has ruled out any significant decline in foreign investors’ appetite for Egyptian treasury bonds (T-bonds) if the Central Bank of Egypt (CBE) continues its policy of cutting interest rates.

EFG Hermes Managing Director and Head of Research Ahmed Shams El Din announced that the total sales of Egyptian treasury bills (T-bills) to foreigners are expected to reach about $19bn, similar to 2017, according to the state-run Middle East News Agency.

The government’s foreign exchange needs that would be provided through treasury bills may range from $15bn to $20bn in 2018, much of which will be used to pay previous benefits, Shams El Din explained, adding that T-bill sales to foreigners would be sufficient to cover those foreign exchange needs. However, Shams El Din clarified that the excessive reliance on the deluge of foreign inflows into Egypt’s high-yielding debt is undesirable and carries serious risks.

“If interest rates declined to 13-14%, yields will consequently be lowered on Egyptian treasury bills to levels close to those rates. However, this would not affect the attractiveness of Egyptian treasury bills to foreigners, as they are low-risk investments,” he explained.

He pointed out that the average yield dropped to 170 basis points from about 320 after the liberalisation of the exchange rate, pointing out that when comparing the return on Egyptian debt instruments—even after the interest rate cuts—it remains one of the highest returns in emerging markets.

If debt instruments (bonds and treasury bills) are higher in some countries such as Argentina, Nigeri,a or elsewhere, this does not mean that foreign investors and global investment funds will put all their money in these countries, but they will distribute it based on risk, Shams El Din added.

The CBE cut rates at its last meeting on 16 February by 1%, while further decisions by its Monetary Policy Committee (MPC) on interest rates are anticipated during its next meeting on Thursday.

The MPC decided to lower the overnight deposit rate, the overnight lending rate, and the rate of the CBE’s main operation by 100 basis points to 17.75%, 18.75%, and 18.25% respectively. The discount rate was also reduced by 100 basis points to 18.25%.

Share This Article
Mohamed Samir Khedr is an economic and political journalist, analyst, and editor specializing in geopolitical conflicts in the Middle East, Africa, and the Eastern Mediterranean. For the past decade, he has covered Egypt's and the MENA region's financial, business, and geopolitical updates. Currently, he is the Executive Editor of the Daily News Egypt, where he leads a team of journalists in producing high-quality, in-depth reporting and analysis on the region's most pressing issues. His work has been featured in leading international publications. Samir is a highly respected expert on the Middle East and Africa, and his insights are regularly sought by policymakers, academics, and business leaders. He is a passionate advocate for independent journalism and a strong believer in the power of storytelling to inform and inspire. Twitter: LinkedIn:
Leave a comment