Egypt T-bill yields leap on crisis, fears of violence

CAIRO Nov 25 (Reuters) - Egyptian treasury bill yields surged at an auction on Thursday as investors fretted that the country's political crisis might turn violent and push chances for an economic recovery far into the future.

Yields had been falling steadily since August, when the new government of Prime Minister Hisham Kandil formally asked the International Monetary Fund for a $4.8 billion loan to help it shore up government finances.

An IMF technical team agreed in principle to the loan last week, but a decree two days later by President Mohamed Mursi expanding his powers provoked protests and violence across the country. Two people have died in the protests and more than 500 have been injured.

T-bill yields leapt by more than a full percentage point at Thursday's auction to their highest in more than two months.

The average yield on 2 billion Egyptian pounds ($327 million) of 182-day T-bills surged to 13.923 percent, its highest since Sept. 13, from 12.729 percent at an auction last week.

The yield on 3.5 billion pounds of 364-day bills rose to 14.154 percent from 12.985 percent at an auction two weeks ago.

Youssef Kamel, a fixed-income analyst at Rasmala, said the political risk premium had increased as opposition groups squared off against the country's Islamist president.

"The market is worried about the potential for clashes this weekend between protesters going to Tahrir on Friday and the Muslim Brotherhood and Salafis, who have decided to support the president through a million man march to Tahrir on Saturday," said Kamel.

The Brotherhood and its Islamist allies said after T-bills bids were submitted on Thursday they were switching their venue away from Tahrir, where tens of thousands of their political foes have been protesting against Mursi, to avoid possible violence.

The conservative Salafis take a harder line on Islamic principles than do the Brotherhood.

The political crisis pushed Egypt's benchmark stock index on Thursday to a 20-week-month low.

Most of the trade in both stocks and T-bills has been driven by local investors.