Egypt’s treasury bond yields surged to EGP 17.33 billion in March, following the issuance of two key bonds by the Central Bank of Egypt (CBE). This uptick in bond yields comes amid a noticeable decline in inflation, which has sparked optimism regarding the potential for an easing of monetary policy in the near future.
In March, the CBE issued two treasury bonds: a two-year bond valued at EGP 4 billion with a coupon rate of 23.5%, and a three-year bond worth EGP 8 billion with a coupon rate of 21.95%. Both bonds feature a semi-annual coupon frequency, meaning that investors will receive interest payments every six months.
Demand for bonds surpasses expectations
According to data from the CBE, the two-year bond attracted 17 accepted bids, totaling EGP 4.099 billion, while the three-year bond saw 22 accepted bids amounting to EGP 13.235 billion. The weighted average yield for the two-year bond was recorded at 23.4%, while the three-year bond’s yield stood at 21.839%. This bond issuance raised a total of EGP 17.33 billion, signaling robust investor interest despite a volatile economic backdrop.
It is important to note that the coupon rate and yield represent distinct concepts. The coupon rate is the fixed annual interest a bond pays, while the yield reflects the return an investor can expect. When the coupon rate exceeds the yield, the bond tends to trade at a premium, as it offers more attractive returns compared to prevailing market rates.
Inflation decline signals possible policy shift
The uptick in treasury bond yields comes on the heels of a significant decline in inflation. Recent data from the Central Agency for Public Mobilization and Statistics (CAPMAS) revealed that Egypt’s inflation rate dropped sharply from 23.2% to 12.5% in February. This decrease in inflation provides the CBE with an opportunity to reassess interest rates, which could pave the way for a shift in Egypt’s monetary policy.
Mostafa Hatem, Director of Asset Management at Al Baraka Capital, emphasized the importance of this inflationary trend, stating, “Egypt’s economic landscape is shifting, with signs of inflation rates declining. This trend is crucial for monetary policy, particularly in terms of treasury bond yields and interest rates.”
Lower yields could boost growth
The decline in inflation opens the door for potential adjustments to interest rates, as lower inflation typically allows for lower treasury bill yields. This easing of yields could make borrowing more attractive for businesses and individuals, potentially stimulating economic growth.
“A falling inflation rate often paves the way for the Central Bank of Egypt (CBE) to consider reducing treasury bill yields. Lower yields on government debt signal an easing of monetary policy, making borrowing more attractive for businesses and individuals alike,” Hatem explained. He further noted that the recent decline in U.S. dollar interest rates could give Egypt more flexibility in adjusting its own interest rate policies.
Hatem also pointed to the broader economic impact of lower interest rates: “When borrowing costs decrease, businesses can more easily obtain capital, which helps them expand, innovate, and create jobs. This rise in economic activity not only encourages entrepreneurship but also boosts employment opportunities, leading to long-term, sustainable growth.”
Balancing growth
Despite the benefits of lower interest rates, Hatem cautioned that a balance must be maintained to prevent inflation from rising again. “While lower interest rates have clear benefits, policymakers must strike a balance to ensure inflation remains controlled while stimulating investment. The coming months will be crucial in determining how the CBE navigates these factors to support Egypt’s economic trajectory,” he concluded.
