Investors are loving long-term debt following rate cuts: Strong demand drove yields on 5-year bonds down to an average 19.250%, which prompted the Finance Ministry to accept bids for EGP 20 bn up from its EGP 3 bn target, a government source told EnterpriseAM. Meanwhile, investors are demanding higher yields on two-three year bonds, which led the ministry to reject most of the bids and miss its targets.

How did the auction for two and three year bonds play out? The Finance Ministry was looking to raise EGP 4 bn from the sale of 2-year bonds and EGP 15 bn from the sale of 3-year bonds, but ended up accepting bids for a mere EGP 1.5 bn and EGP 1.2 bn, respectively. The bonds were sold at an average yield of 22.350% for 2-years bonds and 21.771% for 3-year bonds, according to data on the CBE website.

REMEMBER- The central bank cut interest rates by another 100 bps when its Monetary Policy Committee met last Thursday, continuing an easing cycle that it kicked off in April with a 225 bps cut.

The Finance Ministry also issued floating rate notes worth a total of EGP 7.5 bn spread over two issuances — a three-year EGP 6 bn issuance and a five-year EGP 1.5 bn issuance, with coupon rates of 32.2% and 31.28%, respectively.

Current market dynamics are behind the shift in investor appetite, our source said, adding that investors loving long-term bonds is a positive development that helps extend the maturity profile of public debt, reduces annual interest payments, and stimulates the secondary market for public debt instruments.

The end goal? The government aims to bring down the debt-to-GDP ratio to 80% by the end of June 2026 and to lower the external debt by USD 1-2 bn annually.

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