Tue May 6, 2014 5:39am EDT
* 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 (Reuters) - Egypt treasury bond prices 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 budget deficit.
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 15.069 percent.
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 currency.
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 immediate reforms.
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)
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