Egypt sold a tiny fraction of the bonds on sale in an auction as the government balked at paying what investors fearful of another plunge in the value of the pound are demanding to buy its local currency debt, states Bloomberg.
According to data compiled by Bloomberg, the cash-strapped nation sold 1.09 million pounds ($35,275) of three-year securities late Monday, the least it has ever raised in a domestic sale of notes.
The amount was a mere 0.04% of the 3 billion pounds of securities initially offered. The government accepted a sole bid at 21.7% after investors demanded yields as high as 28%.
Demand for Egyptian local currency debt has shriveled, driving yields to record highs, amid expectations that the country may be forced to devalue its currency for the fourth time in just over a year, states the Bloomberg report prepared by Netty Ismail and Tarek El-Tablawy.
The value of the pound on the local black market for US dollars has diverged further from the official bank rate as the North African nation struggles to secure hard currency and foreign direct investment, including from the Gulf.
The Central Bank of Egypt hiked its key interest rate by 200 basis points last week to 18.25% in a bid to rein in inflation.
“The parallel exchange rate tells you that the currency needs to weaken,” said Edwin Gutierrez, head of emerging-market sovereign debt at Abrdn Plc.
Steeper Decline
Derivatives traders are hedging against the prospect of a steeper drop in the pound. Further currency declines threaten to exacerbate inflation which climbed to 31.9% in February.
In the non-deliverable forwards market, the currency’s 12-month contract slumped this week past 41 per US dollar for the first time.
The pound has weakened about 50% since March last year and was trading around 30.8 on Tuesday.
Gulf countries are waiting for more certainty on the pound and proof Egypt is following through on commitments to revamp the economy before making good on promises to provide billions of dollars in investment.
The North African nation of more than 100 million people has been heavily exposed to the shock waves of Russia’s invasion of Ukraine and is struggling with its worst foreign-currency crunch in years.
The government had pledged in October to move to a more flexible exchange rate, enabling it to clinch a $3 billion deal with the International Monetary Fund.
