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Emerging market bonds Egyptian sovereign bonds: further downside expected Kilian Reber analyst Michael Bolliger analyst Dear reader,  Egyptian sovereign bonds currently provide an unattractive risk-return proposition, in our view. We think the country's credit risk is more likely to deteriorate further over coming months than to improve, as the political environment is fragile and the macroeconomic backdrop weak. Even though Egypt’s near-term ability to service its external debt is supported by financial aid from the Gulf countries, the country’s longer term ability to service its debt has weakened in recent months. There is no easy way out for Egypt as the political transition has been stifling and the implementation of macroeconomic and political reforms is being delayed, which tends to fuel further insurgence. We expect the ongoing transition to be a multi-year process with a very unclear outcome. The current yield level does not compensate bond holders for the underlying risks, in our view. We therefore recommend that investors do not put new money into Egyptian sovereign bonds at this point in time and current holders are advised to sell their Egyptian sovereign bonds.

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