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Monday, January 23, 2012

Egyptian bond issuance fails

Anyone want to buy some sovereign issuer junk debt?

I've been posting pieces by Spengler warning that the Egyptian economy is on the verge of collapse for months (although at least one vehement commenter seems to think that Spengler knows nothing). Now, it appears to be happening. On Sunday, the first Egyptian auction since Islamic parties swept the Egyptian elections took place. Well, it sort of took place. Investors bought less than a third of the 3.5 billion Egyptian pounds ($580 million) in Egyptian Treasury bonds that were offered.
Yields on Egyptian government debt maturing in nine months jumped to nearly 16%, but the government could not place its local-currency debt to Egyptian investors, even at that exorbitant rate.

This is a new and ominous decline in the financial position of the most populous Arab country. I have been warning since last May that "Egypt is running out of food, and, more gradually, running out of the money with which to buy it." How fast this may occur is hard to specify, but the government's inability to borrow on money markets suggests that the crunch is not far off.


Egypt faces a disaster of biblical proportions, and the world will do nothing about it. Officially, Egypt's foreign exchange reserves fell by half during 2011, including a $2.4 billion decline during December - from $36 billion to $18 billion, or about four months of imports.

But the situation almost certainly is worse than that. More than $4 billion left the country during December, estimates Royal Bank of Scotland economist Raza Agha, noting that the December drop in reserves was cushioned by a $1 billion loan from the Egyptian army and a $1 billion sale of dollar-denominated treasury bills.

The rush out of the Egyptian pound is so rapid that Egyptian investors refuse to hold debt in their own national currency, even at a 16% yield. After Islamist parties won more three-quarters of the seats in recent parliamentary elections - 47% for the Muslim Brotherhood and 25% for the even more extreme al-Nour Party - the business elite that prospered under military rule is counting the days before exile.

The first reports of actual hunger in provincial Egyptian towns, meanwhile, are starting to trickle in through Arab-language press and blog reports. A shortage of gasoline accompanied by long queues at filling stations and panic buying was widely reported last week.
Read the whole thing. Unless you choose to believe that Spengler is making it up, I think we're looking at a sovereign debt implosion that is far worse than anything we have seen in recent years. And I'm sure that having the Muslim Brotherhood and Nour in charge is not doing wonders for investor confidence.

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At 7:36 PM, Blogger Juniper in the Desert said...

I suppose Soros and Buffett can afford to, then they can own their own hell-hole!!

At 10:23 PM, Blogger Empress Trudy said...

HuffingtonPost and the New York Times will of course blame the Jews and Wall st.

At 2:25 AM, Blogger Captain.H said...

To paraphrase Marie Antoinette, "Let them eat Korans."


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