The EGX launched four new sub-indices to track the performance of the most actively traded sovereign debt instruments yesterday in a move that paves the way for investment in index-tracking bond funds and other products linked to those gauges, according to a statement (pdf). The index will only include EGP-denominated debt, the statement says.

In detail: The indices will track treasury bonds according to their tenors: one for bonds with maturities of 1-3 years; one for 3-5 year bonds; one for 5-7 year bonds; and one for bonds with maturities of 7+ years. Only fixed rate bonds can be put in an index, with a minimum value per issuance of EGP 2.5 bn. The bonds included in the indices will be limited to more actively traded and liquid government bonds, with each constituent given a weighting based on its market cap. Each index will be reviewed (or “rebalanced”) once a month.

The launch of the sub-indices comes shortly after our sovereign bonds rejoined JPMorgan’s emerging-market bond index following a decade of absence, in a move that could bring new passive flows into the local debt market. Fourteen EGP bonds worth around USD 26 bn have been added to the JPMorgan GBI-EM Global Diversified Index, giving Egypt a weighting of 1.85%.

Background: The sub-indices fall under an index for publicly-traded government treasuries that the EGX introduced in August 2021. The new indices come after the bourse rolled out a platform to facilitate the trading of government bonds. The platform is expected to provide traders with more detailed information on prices, bids, and orders, and will open up requests for quotations (RFQs), which allow licensed primary-dealers of sovereign debt to ask for quotes from sellers when buying, and use quotation screens to set prices when selling. The trading value of treasury bonds increased to EGP 544 bn by the end of 2021, compared to EGP 378 bn in 2020.