Egyptian Bonds Seize Biggest Gains in Emerging Markets after Rate Hike

Egyptian dollar-denominated bonds increased by the largest amount in emerging markets, after the country resumed the cycle of monetary tightening, which reinforced optimism that the authorities will continue to implement the rescue program set by the International Monetary Fund (IMF) as planned.

The bonds due in February 2026 increased about 0.9 cents on the dollar to 53.4, snapping its biggest gain since July 14. Another 10 Egyptian bonds occupied the best-performing positions on the Bloomberg index of the total return of sovereign bonds in emerging markets.

The additional yield required by investors to buy Egyptian sovereign bonds instead of US Treasury bills shrank by 3 basis points, according to JPMorgan Chase & Co index data.

The central bank raised its benchmark interest rate to the highest level on record, according to data dating back to 2006, highlighting its determination to curb inflation that is nearing the brink of 36% in the country.

This step surprised economic analysts who did not expect a change in the Egyptian interest rate at Thursday's meeting, especially since the state had previously sought to boost its foreign exchange reserves in the period leading up to approving a new devaluation of the currency, as part of the $3 billion bailout program set by the IMF.

In the short term, this step may prevent "a further downgrade of Egypt's credit rating, because it comes before the conclusion of the Moody's downgrade review. Also, this step, along with the review, is in favor of Egyptian bonds denominated in foreign currencies.

The IMF has delayed its review of the bailout programme, and Arab Gulf states have yet to deliver the billions of dollars in aid they have pledged to Egypt, as potential lenders seek more evidence of the authorities' commitment to pursuing reforms, including a flexible exchange rate for the Egyptian currency. 

Last May, Moody's Investors Service placed the North African country under review to downgrade its potential credit rating, citing increasing liquidity risks and debt sustainability. The agency also downgraded the country's rating to "B3" last February.