Economic green shoots: The average yield on Egypt’s five-year bond dropped by 80 bps to 16.676% and the 10-year bond yield shed 56 bps to 16.784% at yesterday’s auction, Reuters reported. This followed larger drops in shorter-maturity instruments on Thursday and Sunday that brought the average yield on the six-month T-bills down by almost 200 bps. Egypt’s yield curve is starting to flatten after having inverted in November and December following the EGP flotation.

Coming closer to the point where the slope of the yield curve is turning positive, we recall Brown Brothers Harriman & Co saying in December that the inverted yield curve signaled slower inflation and lower future interest rates. They suggested that “once the central bank feels that inflation has been squeezed out, it will cut rates. So the curve should move from inverted to positively sloped as the bank cuts.” At the time, BNP Paribas Investment Partners also expected Egyptian assets, “especially the currency,” to appreciate. Bryan Carter, their head of EM fixed income said “after a currency floats and devalues sharply there is a period of overshoot when it trades too cheap and then investors come back to re-establish fair value.”

Ahmed Badreldin, Partner at The Abraaj Group, echoed a similar sentiment in our interview with him in January. He said “we will probably start to see the fruits of the float in the second half of 2017 as the currency begins to strengthen and likely stabilize given the inverted forward curve.”

CIB became the first bank to post a buy rate for USD of less than EGP 17 per greenback yesterday as Al Mal reports it setting a buy price of EGP 16.95 per USD 1. CIB was followed by three other banks, and this appears to be part of a bigger trend.

Foreign exchange bureaux are telling Al Shorouk the rate at which people are selling USD is accelerating. Sources are saying bureaux have bought foreign currency for as little as EGP 17.00-17.20 per USD 1 in smaller cities and for EGP 17.40 per USD 1 in Greater Cairo. One FX bureau reported its USD inflows increasing tenfold. An unnamed CBE source corroborated the FX bureaux’s story to Al Mal, saying inflows to the banking system have jumped to USD 11.2 bn since the float.