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Wednesday, 16 January 2019

Egypt treasuries are once again competitive to carry traders

Treasury bond yields have fallen to their lowest levels in six months: Average yields on 5- and 10-year treasury bonds auctioned by the central bank on Monday fell to their lowest since August and July, respectively, according to CBE data. Average yields for the 5- and 10-year notes were 18.030%, down from 18.292% and 18.152% at the last auction two weeks ago.

Still, yields have risen to the point where Egypt’s treasuries are once again competitive, some analysts say. Subscription rates in government debt auctions suggest investors’ appetite has increased significantly and it seems likely that foreign investors are net buyers of T-bills for the first time since the parallel Central Bank of Egypt repatriation system was terminated, Naeem Holdings said in a research note yesterday. On average, yields on T-bills dropped by 0.88bps since late December and subscription ratios rose 2.3x month-on-month in January, according to Naeem.

The new bank treatment at play here? Banks are also rushing in before the implementation of a new tax treatment that would separately tax all income from investment in government debt, Pharos’ Radwa El-Swaify tells us. Finance Ministry officials have previously said the tax treatment will only apply to treasuries bought after the measure goes into effect.

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