Egypt's dollar bonds rally after Yellen signals support

Egypt's sovereign dollar bonds rallied more than 1.6 cents on Wednesday after U.S. Treasury Secretary Janet Yellen pledged support for the economy of the North African country that is under pressure to deliver bigger reforms.

All of Egypt's dollar bonds rallied, with the March 2024 maturity bid at 98 cents on the dollar, Tradeweb data showed. The longer-dated 2050 and 2059 maturities rallied the most, gaining more than 1.65 cents. But with the former just above 62 cents on the dollar, it is still at distressed levels.

Gergely Urmossy, emerging markets strategist at Societe Generale, said relatively cheap Eurobond valuations could be attracting investors, particularly after Yellen's comments and as Egyptian authorities advance talks with the International Monetary Fund to expand a $3 billion loan programme.

"My sense is that the facility needs to be scaled up to at least $6 billion not to disappoint the market, but if it was scaled up to as high as $10 billion or higher, that would certainly serve as a catalyst for Egyptian assets to rally," he said.

Egyptian officials met with IMF Managing Director Kristalina Georgieva on Tuesday. Georgieva said in November that the Fund was "seriously considering" a loan augmentation due to economic difficulties posed by the Israel-Hamas war.

But pressure is on President Abdel Fattah al-Sisi, who swept to a third six-year term in December, to tackle an overvalued currency, near-record inflation and massive foreign and domestic debt.

On Wednesday, data from statistics agency CAPMAS showed that Egypt's annual urban consumer price inflation rate eased to 33.7% in December - though it was still above the median 33.4% forecast by 14 analysts.

Last month, the IMF appeared to shift its emphasis from the exchange rate to inflation targeting.

Analysts with Tellimer expect Egypt to quicken economic reforms over the coming months, after delays leading up to the December election.

But any IMF-sparked rally could be fleeting until reforms kick in – particularly on the exchange rate, the analysts say.