Demand for US treasuries declines as Trump proposes to “renegotiate” the NAFTA

27/04/2017 20/04/2017  Change Year to Date
BLOM Bond Index (BBI)* 106.49 106.66 -0.16% 4.51%
Weighted Yield** 5.75% 5.71% 0.61% -14%
Weighted Spread*** 421 420 0.24% -19%

 

27/04/2017 20/04/2017 Weekly Change
BBI 106.49 106.661 -0.16%
JP Morgan EMBI 778.88 776.79 0.27%
5Y LEB 5.42% 5.49% -7
10Y LEB 6.56% 6.48% 8
5Y US 1.81% 1.78% 3
10Y US 2.30% 2.24% 6
5Y SPREAD 361 371 -10
10Y SPREAD 426 424 2

 

The BLOM Bond Index (BBI) slightly fell by 0.16% in the past week to settle at 106.49 points on April 27, 2017. The Lebanese index was outpaced by the JP Morgan Emerging Markets’ Bond Index (EMBI), which rose by 0.27% to 778.88 points over the week.

Demand for Lebanese Eurobonds maturing in 5 years increased over the past week as yields fell from 5.49% on 20/04/2017 to 5.42% on 27/04/2017, while demand for Lebanese Eurobonds maturing in 10 years contracted over the same period, with yields rising from 6.48% on 20/04/2017 to 6.56% on 27/04/2017.

In the USA, even though Trump renewed his pledge to slash personal and corporate tax rates leaving many unanswered questions in the market this week (Apr.26th), demand for safe-haven US treasuries remained low. Market sentiment was lifted upon Trump’s decision not to terminate the NAFTA, but instead renegotiate its terms with Mexico and Canada, which encouraged investors to invest in stocks on the expense of treasuries.

Hence, demand for treasuries dropped as revealed by the rise in yields on the 5 Year and 10 Year notes from 1.78% and 2.24% on 20/04/2017 to 1.81% and 2.3% on 27/04/2017, respectively.

The 5 year spread between the Lebanese Eurobonds’ yields and the US treasuries fell by 10 basis points (bps) to stand at 361 bps, while the 10 year spread broadened slightly by 2 bps to stand at 426 bps on 27/04/2017.

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

27/04/2017 20/04/2017
Lebanon 391 380
KSA 86 91
Dubai 109 111
Brazil 220 227
Turkey 213 230

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