Demand for Lebanese Eurobonds improved during the week, as the credit rating agency, Standard & Poor’s, kept Lebanon’s sovereign debt rating at B/B-, with stable outlook. This translated into the BLOM Bond Index (BBI) increasing by a weekly 0.17% to 106.814 points. Yet it still was outperformed by the JP Morgan emerging markets’ bond index, which gained a weekly 0.74% to reach 680 points.
With this in mind, the yields on the 5Y and 10Y Lebanese notes respectively dropped by 4 basis points (bps) and 2 bps to 5.32% and 6.13% this week. Similarly, in the US, the yields on the 5Y and10Y US benchmark notes slightly slipped from respective 1.37% and 1.88% to 1.32% and 1.87%.
The decline in US treasury yields this week could be a correction from last week’s sluggish demand where the bid-to-cover ratio for 5 and 7 year treasury notes reached its lowest since May 2009.
Accordingly, the spread between the yield on the 5Y Lebanese Eurobonds and their US comparable broadened from 399 bps to 400 bps as the increase in demand for medium-term US treasuries outpaced that of Lebanon’s. On the other hand the 10Y spread narrowed from 427 bps to 426 bps.
Lebanese 5Y Credit Default Swaps (CDS) widened from last week’s quote of 375-394 bps to 377-400 bps.
In regional economies, 5 year CDS quotes of Saudi Arabia and Turkey narrowed from respective 75-85 bps and 217-222 bps to 72-81 bps and 215-218 bps. Brazil’s 5 year CDS quotes also contracted from last week’s quote of 289-293 bps to 266-272 bps while that of Dubai broadened from 193-202 bps to 213-225 bps. Moreover, Egypt’s 5 year CDS quotes widened from 315-339 bps to 326-356 bps this week.