Yield-hungry investors follow their appetites to Egypt

One of the most popular emerging-market trades is in a Middle Eastern currency that was shunned by investors just a year ago.

Large bond-fund managers such as T. Rowe Price Group Inc. and J.P. Morgan Chase & Co. and other investors have poured money into Egyptian government debt this year, following a sharp drop in the Egyptian pound that made the debt more attractive to foreign buyers. About 60% of the 70 local-currency bond funds tracked by data group eVestment held Egyptian debt at the end of the third quarter.

A buyer of government bonds denominated in the Egyptian pound can collect around 18% annually on the country's three-month Treasury bill as of late last week, due to moves by Egypt's central bank, which has increased interest rates sharply over the past year. By comparison, the yield on a three-month U.S. Treasury bill was 1.225%, as of Friday.