Lebanese CDS on the Rise due to the oversupply of Eurobonds

Lebanon’s BLOM Bond Index (BBI) dropped by 1.49% over the past week to reach 88.72 points. As for the JP Morgan Emerging Markets’ Bond Index (EMBI), it recorded a marginal increase of 0.10% and reached 765.33 points.

Yields on the 5 year (5Y) and 10Y Lebanese Eurobonds rose from last week’s 9.63% and 10.10% to 10.02% and 10.47% this week, respectively.

The Lebanese Government 5Y Credit Default Swap (CDS) reached one of its highest levels in more than a decade. This increase can be partially justified by higher public debt and continuous political turmoil; however, the main trigger is the oversupply of Eurobonds. In fact, Lebanese commercial banks are freeing up dollars through the sale of Eurobonds in an effort to place dollars at the Central Bank in exchange for attractive returns through the financial engineering scheme.

In the US, the yields on the 5Y and 10Y treasury bills declined from last week’s 2.77% and 2.90% to this week’s 2.73% and 2.84%, respectively. In reality, trade war fears have sent U.S. stocks lower this week while sliding Chinese stocks and a weakening Yuan have also raised concerns that there could be global slowdown.

Meanwhile, the 5Y and 10Y spreads between the yield on the Lebanese Eurobonds and their US comparable widened from last week’s 686 basis points (bps) and 720 bps to 729 bps and 763 bps, respectively.

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

 6/28/20186/21/2018
Lebanon702655
KSA9297
Dubai135133
Brazil267268
Turkey298314

Weekly Change of Lebanese Eurobonds Prices

 PricesWeeklyYieldsWeekly
Maturity Coupon in %6/28/20186/21/2018Change 6/28/20186/21/2018Change bps
11/28/20195.4596.597-0.52%8.11%7.69%42
3/9/20206.37596.596.75-0.26%8.63%8.44%19
4/14/20205.895.2595.5-0.26%8.71%8.52%19
6/19/20206.1595.2595.63-0.40%8.82%8.58%24
4/12/20218.259697.38-1.42%9.92%9.32%59
10/4/20226.186.587.5-1.14%10.06%9.73%33
1/27/2023684.7586.13-1.60%10.25%9.82%44
4/22/20246.6584.3886-1.88%10.28%9.86%42
11/4/20246.2581.583.13-1.96%10.29%9.88%41
12/3/20247.0084.7586.38-1.89%10.30%9.91%39
2/26/20256.208082-2.44%10.44%9.95%49
6/12/20256.2579.8881.63-2.14%10.38%9.97%42
11/28/20266.6078.8880.75-2.32%10.43%10.03%39
3/23/20276.8579.3881.25-2.30%10.51%10.13%39
11/29/20276.7578.580.25-2.18%10.38%10.03%35
11/3/20286.6576.3878.5-2.70%10.43%10.03%40
2/26/20306.6576.6377.5-1.12%10.10%9.95%16
4/22/20317.007778.5-1.91%10.26%10.01%25
3/23/20327.0076.578.25-2.24%10.22%9.93%29
11/2/20357.057677-1.30%9.99%9.84%15
3/23/20377.2576.577.75-1.61%10.06%9.88%18

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