EXCLUSIVE- Are yields on EGP debt being driven down by banks buying before a new tax treatment goes into effect? A senior government source we spoke with suggests that a significant portion of the demand for EGP debt is being driven by an upcoming change in the tax code. The measure will force banks and companies to separately account for income derived from their holdings of government debt and could see their effective tax rate rise. The source said domestic banks are accelerating their buying of treasuries to lock in profits before the tax measure comes into effect. High domestic and international appetite has helped drive down the cost of borrowing for the government, but the source expects that demand at auctions will decline slightly after the new tax treatment comes in effect.

The new tax treatment could be ratified in “days,” the source said. The change will be introduced to the executive regulations of the Income Tax Act, which does not require a vote from the House of Representatives.