(Corrects lead to show bond yields jumped)
* C.bank delays announcing results until after banking hours
* High yields, low volume reflect declining demand
* Public deficit expected to widen absent subsidy reform
CAIRO, May 6 Egypt treasury bond yields jumped
to the highest levels in eight months at an auction late on
Monday that was delayed amid speculation that bids had pushed
yields too high for the government, which is facing a rising
The average yield on five-year bonds increased to 13.460
percent from 13.076 percent at the last auction on April 8,
while the yield on 10-year bonds rose to 15.436 percent from
Rates have not been that high since Sept. 3, when the
average yield on the five-year bond stood at 14.63 percent and
the yield on 10-year bonds reached 15.96 percent.
Demand for government securities has declined amid
expectations the central bank would cut interest rates next
quarter, fixed-income traders have said.
Higher yields also reflect a declining willingness of the
local money market to finance the public deficit, which the
government has relied on since a popular uprising in early 2011
chased away most foreign investors and put pressure on the local
The trigger for Monday's hike was the auction of 266-day
treasury bills on Sunday at a yield slightly above the
357-day bills the previous week, a Cairo-based fixed-income
trader told Reuters.
"That sent a message to the market that the government has
to borrow the funds and the Ministry of Finance isn't too
concerned with yields now," the trader said. "That makes the
market more aggressive."
The central bank delayed announcing the results of the sale
until after banking hours on Monday, which traders suspected was
related to the government's concern over rising yields.
"Banks and traders submitted very high yields, so the
Finance Ministry was probably checking whether they really do
need the funds, because they want to cap interest rates," the
same trader said.
The central bank said it accepted bids on Monday worth 1.006
billion Egyptian pounds ($143.41 million) for the five-year
bonds and 1.036 billion Egyptian pounds for the 10-year bonds,
about half the volume it had offered for each security.
The trader said the low volume of maturities sold probably
reflected the government's attempt to reign in rising yields.
Bond and treasury-bill auctions have been cancelled or capped
occasionally in the past, most recently last month.
Egypt's budget deficit hit around 14 percent of gross
domestic product in the last fiscal year ending on June 30. The
government expects the deficit to reach around 12 percent this
fiscal year and up to 14.5 percent in the coming fiscal year if
it does not implement reforms.
Successive government have shied away from meaningful
reforms, such as an overhaul of Egypt's bloated fuel and food
subsidies system, to avoid setting off a social backlash.
Officials have said that fuel subsidies alone could cost near
$19 billion in the next fiscal year beginning in July absent
Egyptian 91-day and 266-day T-bill yields jumped to their
highest in more than four months on Sunday. Last week, yields
for 182-day and 357-day T-bill yields jumped to their highest in
more than three months.
Last week, the central bank kept its key interest rates on
hold, seeking to find a balance between stimulating the economy
and keeping inflationary pressures in check.
($1 = 7.0150 Egyptian Pounds)
(Reporting By Stephen Kalin Editing by Jeremy Gaunt)