Egypt’s credit risk rises to highest in years

Egypt’s dollar bonds tumbled and the nation’s default risk surged to the highest in more than three years after election results were delayed and the military moved to consolidate power. The yield on the country’s 5.75 percent bonds jumped 23 basis points, or 0.23 of a percentage point, to 7.3 percent, the highest since February, at 3 p.m. in Cairo, data compiled by Bloomberg show. Five-year credit default swaps advanced 27 basis points to 706, the highest level since December 2008, according to data provider CMA. The pound fell to the lowest level in more than seven years, and the benchmark stock index slumped to the lowest close in almost five months. More than a year after an uprising deposed Hosni Mubarak, the military is “looking as strong as ever, while Egypt has no parliament, no constitution, no president and a lot of its citizens are losing hope,” Teymour El-Derini, Cairo-based director of Middle East and North Africa equity sales trading at Naeem Brokerage, wrote in an email. “The picture is looking as blurry as ever. It’s not the time to think outside the box but actually to wait and see how things will turn out.” The election commission decided to postpone naming the next president, initially slated for Thursday, because it needs more time to review voting fraud allegations submitted by Muslim Brotherhood candidate Mohammad Mursi and Ahmad Shafiq, Mubarak’s last premier. The delay follows a move by the military to reclaim legislative powers after a court ruling effectively dissolved parliament, setting up a confrontation between Islamists and the Supreme Council of the Armed Forces. Election results may be announced on June 23 or 24, the commission’s Secretary-General Hatem Bagato was cited as saying by the state-run Al-Ahram Gate website. The government paid 15.492 percent to sell six-month treasury bills Thursday, the highest since Bloomberg started tracking the data in 2006. That’s a 13 basis-point jump from the average yield at last week’s sale. The one-year yield rose four basis points to a 15.965 percent, according to central bank data on Bloomberg. The government fell 21 percent short of meeting its 5 billion pound ($825 million) target. The pound, subject to managed float, weakened as much as 0.1 percent to 6.0594 a dollar, the lowest level on a closing basis since December 2004. “There is total uncertainty regarding what will happen after the election,” said Moustafa Assal, managing director of Bondlink Advisory, a Cairo-based financial advisory firm that mostly trades government securities. Investors are selling the country’s dollar bonds and will decide after the election result “whether to buy again or not. Even a 7 percent yield is not enough to make them keep the paper,” he said. The benchmark EGX 30 Index of stocks lost 1.9 percent to 4,031.6 at the close in Cairo, the lowest level since Jan. 23. The measure has tumbled 8.8 percent this week, the biggest such drop since March 2011. Commercial International Bank Egypt SAE, the country’s biggest lender also known as CIB, tumbled 3.8 percent to 21.58 pounds. Palm Hills Developments SAE, a luxury property developer, declined 2.1 percent to 1.43 pounds, the lowest since Feb. 7. Egypt’s interim military rulers have also granted themselves immunity from civilian oversight over military affairs and the power to choose who writes the new constitution. The declaration came after polls closed in the first presidential election following the ousting of Mubarak last year. The generals have pledged to transfer power to an elected president by the end of the month. The developments threaten further delays to concluding a $3.2 billion loan agreement from the International Monetary Fund. The government needs this money to meet about $11 billion of financing requirements over 18 months, Finance Minister Momtaz al-Saieed said in April. The cost of insuring government debt advanced for a sixth day. From TheDailyStar