Demand for medium and long term Lebanese Eurobonds fell during the week, as it is becoming more apparent that Lebanon is following the tide of global investor hesitance in the bond market. This translated into the BLOM Bond Index (BBI) decreasing by a weekly 0.51% to 107.38 points, and yet still outperforming the JP Morgan Emerging Markets’ Bond Index, which declined by 0.58% to reach 686 points over the same period.
The yields on the 5Y and 10Y Lebanese notes increased respectively augmented by weekly 10 basis points (bps) and 11 bps to 5.24% and 6.03%, respectively. On the US level, the US Bond market has been persistent in its negative activity, as the respective yields on the 5Y and 10Y US benchmark notes recorded weekly increases of 12 bps each to 1.55% and 2.18%.
US Bonds market has been falling off the wagon since the beginning of April where, yields on the 5Y and 10Y US notes steeply ascended from respective 1.37% and 1.94% to 1.55% and 2.18%, leaving analysts dumbfounded. With a rule of thumb being that lenders are the “losers” during times of upward price movement, the main reason for this fall in demand (globally one might add) is due to the overriding factor that global prices are witnessing inflationary pressures. This is in line with the approximate 16% increase in international oil prices since beginning of April. Furthermore, it is quite evident that US investors are in a “wait and see mode” in regards to when the Federal Reserve will be hiking the interest rates.
Accordingly, the spreads between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable slightly narrowed from 371 bps and 386 bps to 369 bps and 385 bps over the same period, on the back of the lower demand for US notes outpacing that of Lebanon’s.
Lebanese 5Y Credit Default Swaps (CDS) broadened weekly from 365-388 bps to 372-396 bps. In regional economies, 5 year CDS quotes of Dubai and Turkey remained at their previous quotes of 199-210 bps and 221-224 bps, respectively. In addition, Brazil’s 5 year CDS quotes expanded weekly from 229-231 bps to 234-237 bps while Saudi Arabia’s 5Y CDS quotes narrowed from 65-73 bps to 63-71 bps. As for Egypt’s 5Y CDS quotes, it slightly moved from 317-336 bps to 314-338 bps.