Nigeria’s Election Chaos May Be Boosting Appeal of Egypt Assets

LAGOS (Capital Markets in Africa)  – The fortunes of Egypt and Nigeria’s local-currency bonds have diverged. Foreign inflows into Egyptian Treasury bills has narrowed the yield gap with Nigerian assets to below a percentage point for the first time in almost a year. That’s partly because the North African nation hasn’t been making headlines, which is in sharp contrast to Nigeria, where assets missed out on a rally this year because of political chaos ahead of general elections next month.

• The yield on Egypt’s 12-month Treasury bill fell to 18.4 percentTuesday, from almost 20 percent at the start of the year
• The yield on Nigeria’s security climbed 13 basis points this year to 17.5 percent Monday

Traders are also happier with Egypt’s currency system. The central bank’s decision late last year to end a repatriation mechanism guaranteeing foreign-exchange availability for overseas investors will probably make the pound more volatile, but markets see it as a signal authorities are moving closer to a free float. Nigeria, by contrast, has more or less pegged the naira to the dollar since mid-2017, which investors fear could lead to it becoming overvalued and raises the risk of a dollar shortage should oil prices drop significantly.

Egypt “has a reform story,” said Parth Kikani, a director of fixed income at the Dubai-based Emirates NBD Asset Management, which has been overweight Egypt in the past two years by investing in its Treasury bills. “We see a lot of positives in the economy,” he said, adding that he sees Moody’s Investors Service and Fitch Ratings following S&P Global Ratings in upgrading the nation’s debt ratings.

The pound advanced the most in almost two years Monday as fund flows into the local Treasury bills market accelerated amid improving appetite for developing-nation assets.

Source: Bloomberg Business News