Lebanese Eurobonds Yields Up Amid Concerns About US Sanctions on Hezbollah

Lebanon’s BLOM Bond Index (BBI) declined by 3.29% over the week ending July 11, 2019 to settle at 88.57 points moreover the JP Morgan Emerging Markets’ Bond Index (EMBI) recorded a downtick of 0.72% to reach 853.6 points.

In details, the demand on the 5 year (5Y) and 10Y Lebanese Eurobonds declined over the past week, as their respective yields rose from 10.86% and 10.30%, to 11.83% and 11%, respectively. As for the 5Y CDS,  it recorded a significant increase from 879 basis point by July 7, 2019 to 940 basis point by July 11, 2019. In fact, the bonds’ yields and CDS perfroamnce this week was mainly affected by the United States decision to impose new sanctions against three top Hezbollah figures including two members of the Lebanese Parliament .

The US bonds performance was teared between 2 events, namely the dovish statement of J.Powell and the strong Job and CPI data. The result was a decline in the demand for 5 Year and 10 Year US treasuries which drove yields higher by 14 basis points (bps) and 17 bps to reach 1.88% and 2.13%, respectively . Although June’s jobs report showed stronger-than-expected hiring in the U.S, the U.S. Federal Reserve Chairman Jerome Powell stated on Wednesday that the economic outlook hadn’t improved in recent weeks and emphasized several risks. As such, Markets interpreted the comment as a signal the central bank will cut interest rates for the first time in nearly a decade in next meeting on July 30-31. As a result, the 3M and 10Y US treasuries yields decreased to reach 2.20% and 2.07% respectively, indicating an inversion of the U.S. Treasury yield curve. However, the release of the consumer-price index on Thursday led to a sell off in bonds and increase in yields in response to strong inflation data. In details , the core consumer price index, which excludes food and energy rose 0.3% in June from the prior month and the most since January 2018.

As such, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparables widen from last week’s 912 and 834 bps, to 995 and 887 bps this week.

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

 

11/07/201904/07/2019
Lebanon940879
KSA7678
Dubai134134
Brazil131146
Turkey400371

 Weekly Change of Lebanese Eurobonds Prices

 PricesWeeklyYields Weekly
Maturity Coupon in %11/07/201904/07/2019Change 11/07/201904/07/2019Change bps
12/04/20218.2593.7195.29-1.66%12.33%11.24%109
04/10/20226.185.0887.38-2.62%11.78%10.80%97
27/01/2023683.3885.75-2.77%11.88%10.93%95
22/04/20246.6581.4283.75-2.79%11.85%11.10%74
04/11/20246.2579.2981.67-2.91%11.57%10.86%71
03/12/20247.0081.6483.90-2.70%11.68%11.02%66
26/02/20256.2079.0481.46-2.97%11.34%10.65%69
12/06/20256.2579.6782.00-2.85%11.01%10.38%63
28/11/20266.6077.9281.08-3.91%11.05%10.31%74
23/03/20276.8578.0881.50-4.19%11.16%10.39%77
29/11/20276.7577.1780.38-3.99%10.98%10.29%69
03/11/20286.6577.1780.33-3.94%10.56%9.93%63
26/02/20306.6575.4279.29-4.89%10.55%9.83%72
22/04/20317.0076.2178.60-3.04%10.58%10.15%43
23/03/20327.0077.0480.13-3.85%10.27%9.76%52
02/11/20357.0575.0478.17-4.00%10.22%9.75%48
23/03/20377.2575.7979.17-4.26%10.25%9.75%50

 

 

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