Egypt’s central bank will issue the country’s first floating rate notes on Sept. 18, the bank said on Wednesday, as the government moves to capitalize on falling yields.
The notes, which are bonds with variable coupons, are worth 1 billion Egyptian pounds ($164.15 million) and will mature on Sept. 16, 2014, the bank said, setting Sunday as the deadline for submissions.
The notes will allow investors to minimize their interest rate risk and the government to diversify its debt instruments and its investor base, the Finance Ministry said in a presentation sent to banks.
The ministry was encouraging financial institutions and individuals to invest, “especially after recent events,” an apparent reference to the economic turmoil in the year and a half since Hosni Mubarak was ousted in a popular uprising.
Treasury yields have fallen from historic highs since June as a new elected president stamped his authority over the powerful army and named a largely technocratic government that is pushing hard to secure foreign help for the economy.
“Yields are falling like crazy and they want to benefit from falling rates,” said one fixed-income trader in Cairo.
The notes will be sold in an auction, and the central bank may re-open the notes for further sales at subsequent auctions depending on market appetite, the finance ministry said.
The coupons, to be paid every six months, will equal the weighted average yield of six-month treasury bills at the four most recent auctions plus a spread, the ministry said.
The spread for this issue would be 0.4375 percent for the life of the note, the central bank said.
Six-month T-bills issued on Tuesday had an average yield of 15.096 percent, compared to less than 10 percent in the weeks before the uprising.
State borrowing costs reached unsustainable levels earlier this year as local banks shouldered nearly all new lending to the government after foreign investors fled the country following a popular uprising in February 2011.
The central bank has sought out new forms of financing to include dollar and now euro-denominated treasury bills. At its first euro T-bill auction on Aug. 28, foreigners took up one fifth of the notes on offer.
The yield on an Egyptian Eurobond maturing in 2020 fell below 5.2 percent this week, its lowest since before the 2011 uprising, after soaring as high as 8.29 percent in January.
($1 = 6.0920 Egyptian pounds)