EXCLUSIVE- Egypt considers tying local bond yields to CBE corridor rates: The government is considering tying the yields on local bond issuances to inflation or the central bank’s corridor rate, a senior government official told Enterprise. The move could reduce the state’s debt service burden, according to the source. Also currently under consideration is a return to zero-coupon bond issuances, which can be reclaimed within three months if the central bank cuts benchmark interest rates within that time frame.

Zero-coupon bond crash course: Zero-coupon bonds are a debt instrument “that doesn’t pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value,” Investopedia explains. That means the price at which the bonds are purchased is much lower than the actual value, and the difference between these two values represents the return on investment. Longer-tenor bonds are purchased at a lower price than short-tenor issuances, and investors allow the interest to accrue until the date of maturity. Most zero-coupon bond issuances carry tenors of at least 10 years.

Background: Egypt has embarked on a comprehensive strategy to reduce debt to GDP to 80% by 2022 and is planning to prolong debt maturities and diversify sources of borrowing. The government wants to bring the average maturity for local debt to four years and to restructure debt so that 70% of it would be long term bonds.