Concerns over Interest Rate Cut Pushed U.S Treasury Yields Down This Week

Lebanon’s BLOM Bond Index (BBI) witnessed a decrease of 1.49% over the past 2 weeks to reach 87.46points in June 13 while the JP Morgan Emerging Markets’ Bond Index (EMBI) recorded an uptick of 1.63% to reach 841 points.

In Lebanon, the demand on the 5 year (5Y) and 10Y Lebanese Eurobonds retreated over the past 2 weeks as their respective yields grew from 11.53% and 10.92% to 12.02% and 11.31%, respectively. Worth mentioning that the Lebanese yield curve has started to be inverted and the shorter-term yields are higher than the longer-term yields.

As for the 5Y CDS,  it increased from 866 basis point by May 30, 2019 to 869 basis point by June 14, 2019.

In the US, the FED latest statement, the low inflation data and the labor department statistics led to a higher demand for treasuries.  As a result, the yields on 5Y and 10Y US treasuries slipped from 2.03% and 2.22% to 1.84% (the lowest since the start of the year)and 2.10%, respectively. In details, a report from the Labor Department on Wednesday, showed that in the 12 months through May, the CPI increased 1.8%, slowing from April’s 1.9% gain pointing to moderate inflation. As such, signs of a slowing economy could increase pressure on the Federal Reserve to cut interest rates this year and lift therefore prices for outstanding bonds. Moreover, on Thursday, yields extended declines after the Trump administration has concluded that Iran is responsible for attacks on two oil tankers in the Gulf of Oman which rose the geopolitical uncertainty in the gulf region.

Accordingly, the 5Y and 10Y spread between the yield on the Lebanese Eurobonds and their US comparables winded from 950 and 870 basis points (bps) on May 30 to 1018 and 921 bps this week noting that the 5Y spread became higher from the 5Y CDS by 152 basis point.

 

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

13/06/2019 30/05/2019
Lebanon 869 866
KSA 87 93
Dubai 140 138
Brazil 165 180
Turkey 473 492

 

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields   Weekly
Maturity Coupon in % 13/06/2019 30/05/2019 Change 13/06/2019 30/05/2019 Change bps
12/04/2021 8.25 93.89 95.06 -1.23% 12.05% 11.25% 81
04/10/2022 6.1 84.34 85.33 -1.16% 11.96% 11.50% 46
27/01/2023 6 82.60 83.57 -1.16% 12.06% 11.64% 43
22/04/2024 6.65 80.78 81.72 -1.14% 11.98% 11.65% 32
04/11/2024 6.25 78.82 79.71 -1.11% 11.65% 11.36% 29
03/12/2024 7.00 81.03 82.01 -1.19% 11.80% 11.50% 30
26/02/2025 6.20 78.17 79.25 -1.36% 11.52% 11.19% 33
12/06/2025 6.25 78.78 79.83 -1.32% 11.20% 10.90% 31
28/11/2026 6.60 77.05 78.36 -1.67% 11.22% 10.90% 32
23/03/2027 6.85 76.86 78.42 -1.98% 11.41% 11.04% 37
29/11/2027 6.75 75.58 77.21 -2.12% 11.31% 10.94% 37
03/11/2028 6.65 75.32 76.93 -2.09% 10.91% 10.57% 34
26/02/2030 6.65 73.33 74.30 -1.30% 10.94% 10.74% 20
22/04/2031 7.00 73.85 74.99 -1.52% 11.00% 10.78% 22
23/03/2032 7.00 75.97 77.68 -2.20% 10.45% 10.15% 30
02/11/2035 7.05 73.32 74.29 -1.30% 10.49% 10.33% 16
23/03/2037 7.25 73.91 75.27 -1.81% 10.52% 10.31% 21

 

 

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