Finance Ministry names top players in risky bond industry

The Ministry of Finance released the names of what they referred to as the primary dealers in the Egyptian bond market for the third quarter of the fiscal year 2013/14. The banks make up the most important players in a market that features a large amount of political risk, while also being constrained by competing goals of meeting investment benchmarks and managing inflation.

The most important dealer for the primary treasury bills market was the National Bank of Egypt, which is also the largest bank in Egypt. Behind it was the Commercial International Bank, Arab Africa International Bank, Arab Bank, and Banque Misr.

The Commercial International Bank was the most important dealer for the primary treasury bond market. The National Bank of Egypt, Banque Misr, Credit Agricole Egypt, and Misr Iran Development Bank were the other large dealers.

These large banks make up the majority of purchasing for Egyptian debt auctions as the government looks to finance the budget deficit as well as service its outstanding debt. Most debt is held domestically. Egypt has LE1.5 trillion (US$222 billion) in Gross Domestic Budget Sector Debt, according to the Ministry of Finance. $45.8 billion is held outside of Egypt.

Tuesday’s bond sales by the Central Bank were for an average interest rate of 13.6900 percent, while currently the yield on 3-month notes is 10.637 percent and 6-month bonds have a yield of 10.883 percent.

Currently Moodys, a credit rating agency, has Egyptian government debt rated at Caa1, since downgrading on July 24, 2013. A Caa1 rating is considered a high-risk, poor quality, speculative investment. Other countries with a Caa1 rating include Pakistan and Venezuela.

If instability and structural economic issues continue to worsen, the Egyptian government will have more trouble meeting its goals of encouraging investment, as interest rates needed to make the risk attractive to investors will rise in turn. 

Inflation also poses another check on lower interest rates. Inflation measured 9.82 percent in April 2014, according to the Central Bank of Egypt. Lower interest rates would whittle away at already low salaries across Egypt.