Debt insurance costs up amid fears of violence


With millions of Egyptians marching against President Mohamed Morsi this week, the cost of insuring Egypt’s debt against default grew sharply.

Egypt’s five-year credit default swaps rose 34 basis points to record highs of 900 bps, according to Markit, as published in independent newspaper Al-Shorouk, which clarified that a credit default swaps level of 1,000 bps typically indicates distressed debt.

This means it costs US$887,500 a year for five years to insure $10 million of Egyptian debt, the fifth highest in the world, after surpassing Pakistan this week.

“At the moment, there’s no need for a debt restructuring. The question is how long they can muddle through,” said Anthony Simond, an analyst at Aberdeen Asset Management in London. “At one stage, they will get to a crunch point.”

It should be noted that Egypt’s credit default swaps have leapt 200 bps since mid-June, as political tensions surged. With investment fleeing, worries for the country’s political and economic future have grown.

External debt in Egypt increased to almost $39 billion in the fourth quarter of 2012, from more than $34.7 billion in the third quarter of 2012, as reported by the Central Bank of Egypt.

The June 30 demonstrations were the biggest protests since January 2011, during the last days of the Hosni Mubarak regime. Egypt’s economy has been dwindling gradually in the last couple of years.

The military said Monday that it would intercede if Morsi doesn’t find a solution to the crisis in the coming 48 hours.



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