Bank trading desks made hundreds of millions of dollars in revenue following dramatic moves in Egypt’s bond and currency markets earlier this year.
Citigroup made more than US$100m in fixed income and currency trading revenues related to Egypt, according to sources familiar with the matter, while Goldman Sachs generated more than US$80m, and Bank of America and JP Morgan made roughly US$50m each.
Spokespeople for the banks declined to comment.
Those gains came against the backdrop of a deepening economic crisis in the North African country that produced sharp swings in the country's financial markets. Egypt’s central bank allowed a sharp devaluation in the Egyptian pound in March and raised interest rates steeply in an effort to restore investor confidence in its embattled economy. That saw the pound crater from about E£31 to the US dollar to just under E£50 in the space of a day.
Those actions helped Egypt secure an expanded US$8bn bailout from the International Monetary Fund and stabilised the country’s financial markets. The pound has since held steady at about E£48 to the dollar while Egyptian government bonds have staged a modest relief rally.
Prices of benchmark 10-year local currency debt now trade at 69% of face value, according to LSEG data, following a prolonged period of pressure on the government’s borrowing costs. Ten-year bond prices reached a low of 57% of face value in early April, having traded around par two years previously.
The volatility engulfing Egypt's markets triggered a flurry of trading activity. Average daily volumes in Egyptian bonds reached US$381m in the first half, according to data from bond trading platform MarketAxess, nearly 50% higher than the average over that period in the previous four years.
The net notional outstanding of credit default swaps referencing Egypt increased 56% from the start of the year to a peak of US$890m in early May, according to trade repository DTCC, in a sign that more traders were using CDS to hedge against (or place bets on) the country defaulting on its debt.
Heightened trading volumes provided an uplift to bank desks that help investors and companies reshuffle their exposures to the country. The top 10 banks doubled the amount of revenue they made trading Egyptian bonds and foreign exchange in the first half compared with 2023, according to data provider Vali Analytics.
Banks’ emerging market trading desks weren’t the only ones to benefit from this rise in activity around Egypt. Hedge fund giant Millennium Management made tens of millions of dollars after one of its traders bet on Egypt devaluing its currency, Bloomberg News reported earlier this year.
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