Trump’s First Week Policies Send Mixed Evidence on US Treasuries

 The BLOM Bond Index (BBI) declined by 0.32% over the past week to reach 103.67 points, and was outpaced by the JP Morgan Emerging Markets’ Bond Index which increased by a weekly 0.05% to 747.74 points.

As such, the yield on the Lebanese Eurobonds maturing in 5 years rose from 6.10% on 19/01/2017 to 6.18% this week. Similarly, the yield on the Lebanese Eurobonds maturing in 10 years climbed to 6.86% from 6.81% over the same period.

In the United States, demand on treasuries was mixed. Monday Jan.23^rd witnessed Trump’s announcement of the official withdrawal of the USA from the Trans-Pacific Partnership (TPP) trade deal; investors grew risk-averse, awaiting more clarity on President Trump’s fiscal-policy plans and trade protectionism measures. Yields on 5-year treasury notes fell by 2 basis points (bps) to 1.95% by Jan.26th. However, Trump’s ensuing announcements on slashing corporate tax and supporting domestic corporate plans created an optimistic outlook on corporate profits. Hence, the demand for the long-term 10 year treasuries went down, sending their yield higher by 4bps to stand at 2.51% on Jan.26^th.

As for the spreads between the yields on the 5 Year and 10 Year Lebanese Eurobonds and their US comparable, they increased from 413 bps and 434 bps to 423 and 435 bps, respectively.

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