Egypt’s 5-year bond yields tick up
CAIRO, Dec 24, (RTRS): The maximum yield at an auction of 500 million Egyptian pounds ($81 million) of fiveyear bonds edged up to 14.37 percent on Monday from 14.25 percent two weeks earlier, the central bank said.
Bond yields climbed after a political battle that broke out over the country’s new constitution last month threatened to undermine the government’s efforts to prop up the econo- term timing of a referendum on the constitution.
On Nov 30, the Islamist-dominated constituent assembly, which had been boycotted by important sections of Egyptian society, adopted a draft constitution. The draft is viewed by liberals, secularists, and other religious groups as, among other things, eroding civil liberties, weakening the judiciary, and not providing sufficient protection for women’s rights.
On Dec 8, President Morsi annulled the decree of Nov. 22, but maintained the ban on the courts challenging his “constitutional declarations.” He subsequently gave the army powers to arrest civilians and protect state institutions, up until the referendum results are announced.
On Dec 11, the IMF announced that its planned 2% of GDP loan to Egypt had been delayed at Cairo’s request. There is no set date for resumption of discussions on the program.
In our view, if the current polarization between the FJP and other sections of my and public finances.
“Rates are climbing due to the elevated economic and political risk,” said a Cairo-based fixed income manager.
Standard & Poors’ cut Egypt’s long-term credit rating on Monday and said another cut was possible if the political turmoil continued.
The yield on the five-year bonds, which mature on Nov 13, 2017, ranged from to 13.90 percent to society persists, the “broad-based domestic and international support,” which the IMF views as “crucial for the successful implementation of the planned policies” under the program, could remain out of reach and the program inactive. We believe this would further strain Egypt’s already weak public finances, economic growth prospects, and external indicators.
On Dec 12, President Morsi ordered the referendum to be split between Dec 15 and Dec 22, following the administrative complication of many judges refusing to oversee it, which is a legal requirement. This development raises a cloud over the legitimacy of the electoral process, should insufficient officials have been present at the various polling stations. Early indications are that about 64% of those voting have backed the constitutional changes, with turnout estimated at just over 30% of the registered electorate.
Notwithstanding the outcome of the referendum, we consider that society has been increasingly polarized by recent events. These events have, in our view, 14.37 percent compared to 14.00 to 14.25 percent at an auction on Dec 10.
The ministry of finance, which normally provides average yields, did not release a figure on Monday. The average yield on five-year bonds at a Dec 10 auction was 14.163 percent.
Settlement for the bonds will take place on Nov 13. The central bank sells the bonds on behalf of the finance ministry. reduced support for the FJP and are having a detrimental effect on the policy environment, Egyptian institutions, and the political transition as a whole. We expect political tensions to remain elevated, with no clear indication that rival factions will be brought to a point at which they can contribute to addressing Egypt’s economic, fiscal, and external challenges. The situation may as a consequence undermine donors’ and multilateral lending institutions’ willingness to extend support.
Outlook
The negative outlook reflects our view of the likelihood of a downgrade if we conclude that the government is increasingly unlikely to prevent a further significant deterioration in external or fiscal indicators.
Conversely, we could affirm the ratings at the current level if Egypt’s political transition strengthens the social contract, external pressures ease, and the government reaches its fiscal targets.