Higher US Inflation Drove Demand for US Treasuries Down

In line with global bond markets, Lebanese bonds denominated in foreign currencies impacted by a stronger than expected consumer prices data. As a matter of fact, the BLOM Bond Index (BBI) ended the week at 99.44 points, down by a weekly 3.04%. As such, the BBI was outpaced by the JP Morgan Emerging Markets’ Bond Index (EMBI) which retreated by a weekly 1.53% to end the week at 786.6 points.

The demand on 5 year (5Y) and 10Y Eurobonds fell over the week as their respective yields rose from 6.23% and 7.08% to 6.80% and 7.76%, respectively.

Demand was also down on the 5Y and 10Y US treasuries as their yields increased from 2.57% and 2.84% last week to 2.65% and 2.91% this week, respectively.

Accordingly, the 5Y and 10Y spreads between the yield on the Lebanese Eurobonds and its US comparable widened from 366 basis points (bps) and 424 bps last week to 415 bps and 485 bps this week, respectively.

Higher yields on US treasuries were the result firmer US inflation in January which boosted expectations of faster than anticipated interest rate hikes. According to the Labor Department, the Consumer Price Index surpassed expectations and rose by a yearly 2.1% in January.

5 Year Credit Default Swaps, Mid-Prices (in basis points)

15/02/2018 07/02/2018
Lebanon 478 425
KSA 81 78
Dubai 105 105
Brazil 154 151
Turkey 172 169

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields Weekly
Maturity Coupon in % 15/02/2018 07/02/2018 Change 15/02/2018 07/02/2018 Change bps
23/04/2019 5.5 99.38 100 -0.62% 6.04% 5.49% 55
20/05/2019 6 99.88 100.6 -0.72% 6.09% 5.50% 59
28/11/2019 5.45 98.63 99.63 -1.00% 6.27% 5.66% 60
09/03/2020 6.375 100 101 -0.99% 6.37% 5.86% 52
14/04/2020 5.8 98.75 99.75 -1.00% 6.42% 5.92% 50
19/06/2020 6.15 99.38 100.38 -1.00% 6.43% 5.97% 46
12/04/2021 8.25 104.5 106.13 -1.54% 6.64% 6.10% 55
04/10/2022 6.1 96.75 99.13 -2.40% 6.93% 6.32% 61
27/01/2023 6 95.88 98.5 -2.66% 7.00% 6.36% 64
22/04/2024 6.65 96.5 99.5 -3.02% 7.36% 6.75% 61
04/11/2024 6.25 94 97.25 -3.34% 7.40% 6.76% 63
03/12/2024 7.00 97.88 101.13 -3.21% 7.40% 6.79% 61
26/02/2025 6.20 93.25 96.75 -3.62% 7.45% 6.79% 66
12/06/2025 6.25 93 96.63 -3.76% 7.51% 6.84% 67
28/11/2026 6.60 93 97.75 -4.86% 7.71% 6.94% 77
23/03/2027 6.85 94 98.38 -4.45% 7.78% 7.09% 69
29/11/2027 6.75 92.75 97.25 -4.63% 7.82% 7.14% 68
03/11/2028 6.65 90.5 94.63 -4.36% 7.98% 7.38% 60
26/02/2030 6.65 89 93.5 -4.81% 8.10% 7.48% 62
22/04/2031 7.00 91 95.5 -4.71% 8.12% 7.54% 58
23/03/2032 7.00 90 94.63 -4.89% 8.21% 7.63% 58
02/11/2035 7.05 89.5 94.25 -5.04% 8.18% 7.65% 53
23/03/2037 7.25 90 95.63 -5.89% 8.30% 7.69% 61

 

 

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