Egypt has been a locus of that enduring emerging market passion, the carry trade, and that’s why the unfolding political crisis matters to so many foreign investors.
They have used dollars borrowed at ultra-low interest rates to buy higher yielding debt in emerging markets. In Egypt’s case, the central bank’s benchmark interest rate is an alluring 9.75 per cent. But street protests against the rule of Hosni Mubarak are putting the carry trade in jeopardy.
A lot of money is at stake. Foreign investors own about 20 per cent of Egypt’s short-term Treasury bills and the chart below (from BNP Paribas) shows how holdings have soared in the past two years, from around E£5bn to over E£60bn ($10bn).
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