In a sign of renewed confidence in the Egyptian economy, foreign investors have resumed purchases of Egyptian treasury bills, according to three bankers. This comes after a long absence from the market, triggered by the Ukraine war two years ago.
The news coincides with strong results from the Central Bank of Egypt’s latest treasury bill auction held on Thursday. Local currency one-year bills, with a total value of 87.8 billion Egyptian pounds ($1.78 billion), were nearly three times oversubscribed. This surge in demand followed the bank’s decision to raise interest rates by 6% and allow the Egyptian pound to depreciate against the dollar.
The auction results revealed total bids worth 254.0 billion Egyptian pounds ($5.15 billion) for the one-year T-bill. The central bank also sold 14.2 billion Egyptian pounds ($287.9 million) worth of six-month T-bills in a separate auction, with an average yield of 31.837%.
The value of both one-year and six-month bills sold on Thursday was significantly higher compared to previous auctions held this year. This indicates a rise in investor appetite for Egyptian T-bills due to the increased yields.
While the central bank’s data doesn’t distinguish between foreign and local buyers, a banker revealed that foreign investors submitted bids worth $2.26 billion across both auctions. Of this amount, the central bank accepted $825.2 million.
Prior to the Ukraine war, foreign investors heavily participated in the Egyptian T-bill market, engaging in a strategy known as the carry trade. This involved converting dollars into Egyptian pounds to buy high-yielding T-bills. Investors then aimed to profit by reconverting their earnings back to dollars at a later date and repatriating the funds.
The Egyptian government had previously expressed its desire to decrease reliance on the carry trade for foreign currency inflows, aiming to lessen the country’s vulnerability to external economic shocks. However, the recent return of foreign investors suggests that Egypt’s aggressive interest rate hike and currency depreciation strategy may be proving successful in attracting renewed foreign investment.
