Egypt is starting to claw back capital lost earlier during the global pandemic when foreign investors pulled more than half of their money from the local debt market.
International buyers are returning for a second month after a pickup in June pushed their holdings of local-currency government bonds to $10.6 billion, a reversal from Egypt’s largest-ever capital outflows in the previous three months.
With the central bank keeping borrowing costs on hold since an emergency cut in March, investors are again looking to cash in on a favorite carry trade, in which they borrow in currencies where interest rates are low and invest in the local assets of countries where they are high.
Egyptian bonds have returned 6.8% in dollar terms this year, the fourth-best performance among the roughly 25 emerging markets tracked by Bloomberg. Adjusted for inflation, the average rate on local-currency bonds is one of the world’s highest at around 8.4%, according to Bloomberg Barclays indexes.
External financing received after Egypt’s recent agreements with the International Monetary Fund has started to turn sentiment in favor of local debt, especially with stronger risk appetite across global markets. It may take a similar turnaround in tourism, trade and remittances to put Egypt’s remaining risks to rest.