During the Cabinet meeting on Monday, the first tangible steps were taken to approve 2015’s fiscal balance bill, as each Ministry’s budget was agreed upon. This might have positively affected the Lebanese Eurobonds market during the week, with increased demand for medium and long term Lebanese notes. Consequently, the BLOM Bond Index (BBI) increased by a weekly 0.12% to 107.56 points. However, the BBI was outperformed by the JP Morgan Emerging Markets’ Bond Index, which gained 0.43% to 689 points over the same period.
The yields on the 5Y and 10Y Lebanese notes dropped 2 basis points (bps) each, since the last week, to 5.20% and 6%, respectively. On the US front, the long-term US notes witnessed a promising correction at the expense of the medium-term bonds, as the yield on the 5Y benchmark notes augmented weekly by 2 bps to 1.53%, while that of the 10Y registered a decrease of 4 bps to 2.19%.
Accordingly, the spreads between the yields on the 10Y Lebanese bonds and their US counterpart broadened by 2 bps to 379 bps, while that of the 5Y tightened by 4 bps to 367 bps.
Long-term US notes might have seen a correction after the latest Federal Reserve meeting on May 20th, in which the Fed was adamant that interest rates will not be hiked in June. This latter rise depends on the unemployment and inflation rate. Despite the low 5.4% unemployment rate in April, the inflation rate target of 2% has not been reached yet. Furthermore, oil witnessed a bearish week as prices fell by 0.66%, which possibly overturned the speculation of inflationary pressures.
Lebanese 5Y Credit Default Swaps (CDS) slightly narrowed during the week from 370-397 bps to 370-395 bps. In regional economies, 5 year CDS quotes of Brazil and Turkey also tightened from 228-230 bps and 211-214 bps in the previous week to 218-221 bps and 204-207 bps, respectively. Furthermore, Egypt’s CDS quote went down from 314-338 bps to 311-336 bps. In addition, Saudi’s, and Dubai’s 5Y quotes remained at their previous level of 62-68 bps and 197-208 bps, respectively.