US Curve Yield Inversion Amid Concerns About Slowdown in Economy

The BLOM Bond Index (BBI) ended the week at 89.08 points, declining  weekly by 2.55%.    In fact, the weighted yield rose by 0.70% as political tensions escalated this week and investors are still waiting for effective reforms on the economic front. However, worth mentioning that the weighted yield is still below the level witnessed before the government formation( 11.24% on 29/01/2019). As such, the demand on 5 year (5Y) and 10Y Lebanese Eurobonds retreated over the week, as their respective yields grew from 10.08% and 10.01% to 10.87% and 10.50%, respectively. As for the the JP Morgan Emerging Markets’ Bond Index (EMBI) it also decreased by a marginal 0.14% to end the week at 819.61 points.

In the US, the demand for 5 Year and 10 Year US treasuries increased, driving yields lower by 14 basis point(bps) and 15 bps to reach 2.20% and 2.39%, respectively. The demand for US bonds was mainly driven by the inversion of the US yield’s curve. In fact, on Friday (March 22)  the yield on the 10 Y US treasuries fell below the yield on the 3M T-bil indicating potential recession which led for a selloff in stock market. Moreover, the yields slipped further on Wednesday as European Central Bank President Mario Draghi said the central bank could further postpone a plan to raise eurozone lending rates if data continue to show contraction in the region.
Accordingly, the 5Y and 10Y spread between the yield on the Lebanese Eurobonds and its US comparable widened from 774 and 757 basis points (bps) last week to 867 and 811 bps this week .

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

28/03/2019 22/03/2019
Lebanon 828 791
KSA 87 84
Dubai 137 125
Brazil 185 163
Turkey 449 352

 

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields   Weekly
Maturity Coupon in % 28/03/2019 21/03/2019 Change 28/03/2019 21/03/2019 Change bps
09/03/2020 6.375 96.20 97.13 -0.96% 10.70% 9.56% 114
14/04/2020 5.8 94.83 95.63 -0.84% 11.18% 10.24% 94
19/06/2020 6.15 94.54 95.25 -0.74% 11.02% 10.31% 71
12/04/2021 8.25 93.34 95.25 -2.00% 12.02% 10.88% 114
04/10/2022 6.1 86.33 88.5 -2.45% 10.88% 10.05% 84
27/01/2023 6 84.94 87.13 -2.52% 10.91% 10.12% 79
22/04/2024 6.65 83.56 86.25 -3.12% 10.96% 10.18% 78
04/11/2024 6.25 81.38 83.38 -2.40% 10.76% 10.21% 55
03/12/2024 7.00 83.44 86.38 -3.40% 10.99% 10.21% 78
26/02/2025 6.20 81.05 83.5 -2.94% 10.59% 9.95% 64
12/06/2025 6.25 81.69 83.25 -1.87% 10.31% 9.92% 40
28/11/2026 6.60 79.61 82.13 -3.07% 10.54% 9.98% 56
23/03/2027 6.85 79.96 82.75 -3.37% 10.64% 10.04% 60
29/11/2027 6.75 78.95 81.38 -2.99% 10.50% 10.01% 50
03/11/2028 6.65 77.84 80.5 -3.30% 10.34% 9.83% 51
26/02/2030 6.65 75.95 78.5 -3.25% 10.38% 9.91% 47
22/04/2031 7.00 76.33 78.5 -2.76% 10.50% 10.12% 38
23/03/2032 7.00 76.89 79.5 -3.28% 10.26% 9.83% 43
02/11/2035 7.05 75.96 78.75 -3.54% 10.06% 9.64% 42
23/03/2037 7.25 76.00 79.25 -4.10% 10.19% 9.71% 47

 

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