Bond-Market Darling Egypt Says It Has What Investors Crave Most

CAIRO (Capital Markets in Africa) – Bond investors who came to Egypt to reap a quick payoff might stick around for longer given what the government says it has to offer.

“Investors around the world are looking for a place that has stability and safety, and I think Egypt has that,” Finance Minister Mohamed Maait said Thursday in an interview on the sidelines of an energy conference in Cairo.

Outside investors have pumped billions of dollars into the North African nation’s debt market since its 2016 currency devaluation, the cornerstone of a sweeping economic program backed by a $12 billion loan from the International Monetary Fund. Foreigners now account for 12.5% of the total Egyptian debt holdings, up from 9% at end-2018.

Home to one of the world’s biggest carry-trade returns this year and last, foreign holdings in Egyptian Treasury bills and bonds climbed over 13% since the end of December to $24.9 billion in January, according to the Finance Ministry.

Following a record appreciation in 2019, the Egyptian pound is again among the world’s top three performers this year, winning over traders who borrow in currencies where rates are low and invest in the assets of countries where they are high. Egypt’s local-currency bonds have gained about four times the average return across emerging markets, according to Bloomberg Barclays indexes.

The central bank has kept interest rates on pause so far this year after 450 basis points of monetary easing in 2019. Even with inflation well below the mid-point of its target range for this year, a cut at its next policy meeting on Feb. 20 is far from guaranteed.

Longer Term
The Finance Ministry plans to rely more on long-term debt instruments instead of shorter-duration T-bills, Maait said. It’s gradually increased its issuance of bonds, which now account for almost half of the country’s total debt, up from just 30% in 2018.

The average maturity of Egyptian debt has more than doubled since 2018 to over four years, according to the finance minister.

After a bonanza of bond inflows, the Middle East’s fastest-growing economy is now starting to look for foreign investment beyond debt and its oil and gas industry. Egypt is also in talks with the IMF over a non-financial structural reform program.

“Egypt is very attractive to the whole world: its stability, its continuing growth rate — inflation is going down, the risk premium is declining,” Maait said. “With all the challenges and events happening around the world, it’s still growing at higher rates.”

Egypt Hedges Against Oil Volatility for Second Year, Maait Says
against volatility in global oil prices for a second consecutive year and could do so again, Finance Minister Mohamed Maait said.

The North African country took the step “several times in the current fiscal year 2019-2020, and it will hedge again during the year if needed,” Maait said in an interview Thursday on the sidelines of an energy conference in Cairo. He gave no additional details.

Egypt is becoming a significant player in the global oil derivatives market, selecting Citigroup Inc. and JP Morgan Chase & Co. when it hedged against rising oil prices for the first time in the previous fiscal year, which runs from July to June. The government’s current budget is based on an average oil price of $68 a barrel compared with $70 last year. The budget also assumes an average wheat price of $214 a ton, up from $184.20.

The exact size of Egypt’s hedging program for oil is unclear. The country, one of the world’s biggest buyers of wheat, is also considering hedging against steeper prices for the grain, Maait said.

Source: Bloomberg Business News