Egypt misses T-bill sales goal as yields rise on funding strain

Egypt raised almost three quarters of the 6.5 billion Egyptian pounds (Dh4 billion) it sought at a treasury bills sale yesterday and yields rose as banks faced funding constraints due to increased state borrowing. The government sold 2.757 billion pounds in six-month notes at an average yield of 14.751 per cent, six basis points higher than the last sale, according to Central Bank of Egypt data on Bloomberg. It raised 2.044 billion pounds from an offering of one-year securities at an average yield of 15.399 per cent compared with 15.292 per cent in the previous auction of similar maturity notes. Egypt has relied more on local banks to fund its budget deficit as foreign investors withdrew in the aftermath of the removal of President Hosni Mubarak in February. This reduced banks' cash levels and prompted them to demand higher yields. In March, the central bank started a repurchase facility to ease funding pressure, allowing banks holding state securities to sell them back to the regulator for a week to access funds at 9.25 per cent, a rate it raised to 9.75 per cent last month. Repo facility "The central bank has so far succeeded in managing short-term liquidity needs for the local banks through the repo facility," Mohammad Kotb, Cairo-based asset management director at Naeem Financial Investments, said. "The big jump in yields earlier this quarter has calmed down as the Al Ganzouri government clearly has a green light to borrow from abroad to ease pressure off of local banks." Prime Minister Kamal Al Ganzouri's government will meet with a delegation from the International Monetary Fund this week to negotiate a $3.2 billion loan, Minister of Planning Fayza Aboulnaga said last week. Banks have drawn about 138 billion pounds through repurchase contracts this quarter, including a record 22 billion pounds at this week's sale. The compares with 67 billion pounds in the previous three months, according to data compiled by Bloomberg. The average yield on one-year bills has climbed 152 basis points since September, bringing their advance since the start of political unrest in January to 496 basis points. Egypt's five-year credit default risk soared 390 basis points this year to 632 on December 28, according CMA prices, making it the riskiest in the Middle East.