There was some demand for medium and long term Lebanese Eurobonds this week following the poor performance of last week. However, the BLOM Bond Index (BBI) barely increased by a weekly 0.05% to 107.43 points. Nonetheless, the BBI managed to outperform the JP Morgan Emerging Markets’ Bond Index, which remained at 686 points over the same period.
The yields on the 5Y and 10Y Lebanese notes declined by weekly 2 basis points (bps) and 1 bp to 5.22% and 6.02%, respectively. On the US level, the medium-term US Bond witnessed an encouraging correction at the expense of the long-term notes, as the yield on the 5Y benchmark notes edged down weekly by 4 bps to 1.51% while that of the 10Y recorded an increase of 5 bps 2.23%.
With the latest US positive economic review of jobless claims, which registered a record low since 2010, the possibility that the Federal Reserve would raise interest rates, by Q3 2015,is more likely bearing in mind the Federal Reserve has claimed that the latter raise will only happen when the labor market progresses. Despite that, demand for 5Y US notes went up while investor sentiment for long term debt securities waned due to inflationary pressure from the 15% increase in the price of oil since beginning of April. The increase of 5 bps in the US 10Y bonds brought up to 57 bps increase in the 10Y yield from this year’s high in January.
Accordingly, the spreads between the yields on the 10Y Lebanese bonds and their US counterpart narrowed by 6 bps to 379 bps while that of the 5Y slightly broadened by 2 bps to 371.
Lebanese 5Y Credit Default Swaps (CDS) drifted weekly from 372-396 bps to 370-397 bps. In regional economies, 5 year CDS quotes of Brazil and Turkey narrowed from 234 bps-237 bps and 221-224 bps in the previous week to 228-230 bps and 211-214 bps, respectively. In addition, Saudi’s, Dubai’s and Egypt’s 5Y quotes remained at their previous quotes of 62-70 bps, 198-210 bps and 314-338 bps, respectively.