Egypt's Sovereign Dollar Bonds Jump .. Pound Gains Momentum

Egypt's dollar bonds rose and the Egyptian pound strengthened in parallel market transactions, after the details of a historic $35 billion investment deal with the United Arab Emirates was announced, and investors became optimistic that Egypt would overcome its currency crisis.

Egyptian debt bonds due in 2032 and 2033 rose by more than 5 cents on the dollar yesterday in their largest jump ever, according to Bloomberg, with expectations of the possibility of an imminent reduction and less than what is expected for the value of the pound in banks after the announcement of the agreement.

Egyptian bonds achieved the largest gains among emerging market debts yesterday, Monday.

Bloomberg indicated that Egypt's economic crisis appears to have reached a turning point last week, with the signing of contracts for the Ras El Hekma city development project on the north coast, which the government described as the largest investment in the country's history.

The potential cash injection would give the Central Bank of Egypt the financial muscle it needs to devalue the pound for the fourth time since early 2022.

This move, in turn, would help Egypt conclude an agreement to increase its current $3 billion loan with the International Monetary Fund — little of which has been distributed — into a package of more than $10 billion that might bring in other partners.

The Egyptian currency is widely expected to move in the first quarter of 2024, although analysts are divided over its size and whether it will exceed 50 pounds to the dollar.

In the non-deliverable futures market, the 12-month Egyptian pound contract has risen more than 17% since the Ras El Hekma deal was announced, indicating expectations of a smaller depreciation in the currency's value.

The agreement also reduced investors' perception of risks for Egypt. The additional yield required by investors for owning the country's sovereign dollar bonds rather than US Treasuries fell by 65 basis points to 672, according to guidance data yesterday from JPMorgan Chase.

The bonds were trading at a distressed level of more than 1,000 basis points above Treasuries as recently as January, according to Bloomberg.