Treasury issues first-ever floating-rate treasury notes

The Treasury is testing a new funding tool as rate-cut speculation builds: The Central Bank of Egypt (CBE) issued the first-ever 63-day Treasury notes, worth EGP 150 bn, on behalf of the Finance Ministry this week. The return on these short-term instruments floats with the CBE’s corridor rate rather than being fixed at auction. The notes, which began accruing July 16 and mature September 17, yield the corridor’s midpoint plus a 30-basis-point margin, or around 19.8% at the current corridor. The CBE received two bids covering the full EGP 150 bn on offer and accepted both — a 100% allocation.

The new tool gives the Treasury greater flexibility by “linking the yield to the CBE’s corridor rate, plus a fixed margin, since funding costs decline automatically if interest rates fall,” EG Bank board member Mohamed Abdel Aal tells EnterpriseAM.

Why it matters: Our read is that reaching for a floating-rate tool now — rather than a fixed T-bill — is a wager on the direction of rates and a step toward more active liability management. With markets increasingly pricing in cuts, the structure lets the government share in any easing instead of locking in today’s high yields, Abdel Aal explains. That’s a departure from conventional T-bills, whose yields are determined at auction — awarded to bidders offering the lowest rate — and remain fixed until maturity.

The 63-day tenor “aligns with current expectations that interest rates are headed lower in the coming period,” Abdel Aal says — a break from the standard T-bill program’s three-, six-, nine-, and 12-month maturities, he adds.

Who it’s for: Some investors prefer instruments linked to the CBE’s benchmark rate rather than fixed yields, particularly during periods when the direction of monetary policy is changing, Abdel Aal says. He points to investors looking to hedge against a policy turn as the most likely buyers.

What to watch: Whether the debut becomes a habit. Two bids clearing EGP 150 bn prove the mechanics, not the demand. So watch for the notes to return on a regular calendar, for the bidder pool to widen, and for the floating structure to keep its appeal only as long as cuts stay priced in. If the easing story stalls, so does the case for the tool.