The BBI Slipped on Remarks against Hezbollah, but Resolutions Expected Next Week

The partial recovery of the BLOM Bond Index (BBI) last week did not last, as the BBI slipped by a marginal 0.83% this week, to stand at 99.81 points by Nov.29th. The BBI was outperformed by the JP Morgan Emerging Markets’ Bond Index (EMBI) which rose by an incremental 0.03%, ending the week at 802.89 points.

In fact, this week’s developments on Lebanon’s political scene were mixed. In his statements, the Lebanese Prime Minister Saad Hariri expressed fears that Hezbollah’s military role in regional conflicts may jeopardize Lebanon’s stability and wellbeing. This sent yields on the 5Y and 10Y Euro bonds up from 7% and 7.4% last week to 7.3% and 7.55% this week, respectively. Hence, the 5Y and 10Y spreads between the Lebanese Eurobonds and their US comparables climbed from last week’s 495 basis points (bps) and 508 bps to 521 bps and 518 bps, respectively. Having the 5Y higher than the spread on the 10Y bonds may be an indication of the lack of liquidity in the market, or investors’ preference for medium-term maturities over the longer term bonds.

Moreover, foreign investors feared the uncertainty regarding the concessions Hezbollah is willing to offer to resolve the resignation crisis, which sent Lebanon’s 5Y credit default swaps (5Y CDS) up from 528 bps on Nov. 23rd, to settle at 569 bps on Nov. 29th.

Nonetheless, statements made later in the week by Hariri and other Lebanese leaders were optimistic for the week to come, promising a resolution to the political paralysis gripping Lebanon since the Nov. 4 resignation.

In the US, yields on the US treasuries maturing in 5 and 10 years respectively rose from 2.05% and 2.32% to 2.09% and 2.37% by Nov. 29th. Investors preferred stocks this week on the back of Senator John McCain’s endorsement of the U.S. Senate tax bill, knowing he had rigorously opposed the passage of the bill in Congress. Moreover, U.S. data released this week showed a 0.2% rise in inflation, which reinforces investors’ expectations of an interest rate hike next month.

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields Weekly
Maturity Coupon in % 29/11/2017 23/11/2017 Change 29/11/2017 23/11/2017 Change bps
23/04/2019 5.5 98.13 98.5 -0.38% 6.92% 6.62% 30
20/05/2019 6 98.65 99 -0.35% 6.98% 6.72% 26
28/11/2019 5.45 97.13 97.5 -0.38% 7.01% 6.80% 22
09/03/2020 6.375 98.38 98.75 -0.37% 7.15% 6.97% 18
14/04/2020 5.8 97 97.38 -0.39% 7.19% 7.00% 19
19/06/2020 6.15 97.55 98 -0.46% 7.21% 7.01% 20
12/04/2021 8.25 102.88 103.5 -0.60% 7.27% 7.07% 20
04/10/2022 6.1 95.25 96.25 -1.04% 7.28% 7.02% 26
27/01/2023 6 94.38 95.5 -1.17% 7.32% 7.05% 27
22/04/2024 6.65 96.5 97.13 -0.65% 7.34% 7.22% 13
04/11/2024 6.25 93.88 94.75 -0.92% 7.39% 7.22% 17
03/12/2024 7.00 97.75 98.63 -0.89% 7.42% 7.25% 17
26/02/2025 6.20 93.13 94 -0.93% 7.44% 7.28% 17
12/06/2025 6.25 93.13 94 -0.93% 7.46% 7.30% 16
28/11/2026 6.60 94.13 95.13 -1.05% 7.51% 7.35% 16
23/03/2027 6.85 95.5 96.5 -1.04% 7.53% 7.37% 16
29/11/2027 6.75 94.38 95.38 -1.05% 7.56% 7.41% 15
03/11/2028 6.65 93.25 94.25 -1.06% 7.57% 7.43% 14
26/02/2030 6.65 92.5 93.63 -1.21% 7.60% 7.45% 15
22/04/2031 7.00 94.75 95.5 -0.79% 7.63% 7.54% 9
23/03/2032 7.00 93.75 94.75 -1.06% 7.73% 7.61% 12
02/11/2035 7.05 93.25 94.5 -1.32% 7.75% 7.62% 14
23/03/2037 7.25 93.5 95.13 -1.71% 7.91% 7.74% 17

 

 

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