Egypt’s 10-year dollar bonds, sold in April 2010 at a yield of 5.75 percent, fell, pushing up the rate 2 basis points to 5.94 percent. The yield climbed five basis points yesterday after Finance Minister Samir Radwan said he plans to “quickly” raise $1 billion through foreign notes backed by a U.S. “sovereign guarantee.” He cited the need to diversify financing sources as the government sold 51 percent of the amount offered at a local auction and the average yield on 252- day bills rose to 12.869 percent, the highest since November 2008.

The government will probably pay more to borrow overseas than in 2010, said Win Thin, the head of emerging-market strategy at Brown Brothers Harriman & Co. The budget deficit may grow to the widest in more than a decade in 2012 after Mubarak’s fall led tourists to flee and agencies to cut the country’s credit ratings, according to the Ministry of Finance.

Selling international bonds “seems crazy,” Thin said in an interview from New York. “Egypt has a shaky story right now.”

Insuring Against Default

The cost of insuring the country’s debt against default rose 2 basis points, or 0.02 percentage point, to 332 today, after gaining 6 basis points yesterday, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Similar contracts trade at 360 basis points for Lebanon, 226 for Bahrain and 98 for Abu Dhabi.

The extra yield investors demand to own Egyptian dollar bonds instead of Treasuries fell 1 basis point to 324 yesterday.

U.S. President Barack Obama promised Egypt last week $2 billion in loan guarantees and debt forgiveness. The government has had to rely on local banks to buy the local currency treasury bills it sells weekly to finance its budget deficit.

The North African country’s central bank today accepted 6 billion pounds in seven-day repurchase agreements, which allow banks to sell government securities back at a cost of a 9.25 percent interest rate. The central bank had started the facility in March to boost liquidity among local banks as foreigners shunned the country’s local currency debt. In a debt auction on May 22, the government sold 2.825 billion pounds ($474 million) of the 5.5 billion pounds offered.

"Squeezed" Local Market

“We should tap the market quickly,” Radwan said in a telephone interview from Cairo yesterday. “We need to diversify because the local market is squeezed.”

Global stocks sank the most in two months yesterday, while the euro touched an all-time low versus the Swiss franc and commodities plunged, amid signs Europe’s government-debt crisis is worsening and the economic recovery is slowing. Egypt’s EGX 30 Index lost 0.8 percent to 5,291.81 at 1:33 p.m. in Cairo, extending its drop for the year to 26 percent, the biggest among 90 equity indexes tracked by Bloomberg.

“The timing is not the best in terms of the global environment and in terms of the region,” said Nick Chamie, global head of emerging markets at RBC Capital Markets in Toronto. “There’s a great deal of uncertainty in the way forward in Egypt and the way it’s going to organize its society and economics.”

Slower Growth

Egypt’s economy may grow 1 percent this year, the International Monetary Fund said in April, the slowest pace since 1992. The nation had its credit rating lowered to Ba3, three levels below investment grade, at Moody’s Investors Service in March and to BB at S&P in February.

The North African country had $35 billion in international debt at the end of 2010, according to data on the central bank’s website, making up 14.7 percent of gross domestic product. The government depends on the sale of t-bills to finance the deficit, which may reach 11 percent of gross domestic product in the fiscal year ending June 2012, according to Finance Ministry data.

The ministry hasn’t hired banks to manage the international sale, Radwan said. The bonds will follow the issuance of $1.5 billion in Eurobonds in 2010, which included $1 billion in 10- year bonds and $500 million in debt due to mature in 2040.

Egypt Yields Signal Higher Cost for $1 Billion Bond Sale as Economy Rocked - Bloomberg