US Yields are Likely to Rise as ECB Extends Quantitative Easing

The BLOM Bond Index (BBI) recorded a 0.29% weekly rise to reach 100.02 points. Similarly, the JP Morgan Emerging Markets’ Bond Index increased by a weekly 1.38% to reach 734.53 points.

Hence, yields on the Lebanese Eurobonds maturing in 5Y and 10Y fell from 6.99% and 7.58%, to 6.94% and 7.54%, respectively.

Demand for US treasuries maturing in 5 and 10 years rose this week as European economic data raised scepticism about global growth ahead of the European Central Bank meeting. In details, October data indicated that German industrial output rose less than expected and the British factory productions witnessed the sharpest fall in more than four years. As such, yields fell from 1.90% and 2.45%, the past week to 1.83% and 2.40%, respectively. However, yields are expected to rise after the European Central Bank decided it would conduct an extra nine months of quantitative easing, starting April  yet cutting bond purchases from EUR 80B to EUR 60B per month.

As for the spreads between the yields on the 5 Year and 10 Year Lebanese Eurobonds and their US comparable, they widened from 509 bps and 513 bps last week to 511 bps and 514 bps this week, respectively.

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

08/12/201601/12/2016
Lebanon545562
KSA120125
Dubai145157
Brazil297312
Turkey287306

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