US Yields Up this week amid US-China Trade Hopes and ECB cuts rates

Lebanon’s BLOM Bond Index (BBI) declined by 5% over the week ending September 13, 2019 to settle at 74.67 points meanwhile the JP Morgan Emerging Markets’ Bond Index (EMBI) recorded a downtick of 0.77% to reach 867.06 points.

In fact, the statement of the Ambassador Pierre Duquesne highlighting the delay in implementing reforms in addition to the political bickering have weighted heavily on Lebanon’s Eurobonds Market this week and the county’s 5-year credit default swaps (CDS).  According to BLOMInvest Bank, the demand on the 5 year (5Y) and 10Y Lebanese Eurobonds dropped over the past week, as their respective yields rose from 16.30% and 13.20%, to 18.60% and 14.15%, respectively. As for the 5Y CDS,  it recorded a significant rise from 1,227 basis point by September 5, 2019 to 1,351 basis point by September 12, 2019.

In the US, the U.S. Treasury yields have risen this week at the fastest pace in nearly three years due to the US President Statement and ECB cuts rate decision. In fact, investors saw some positive developments on the international trade front after President Donald Trump delayed a tariff increase on around $250 billion in Chinese imports that had been originally set to start on Oct. 1. Moreover, bonds’ prices declined after the European Central Bank introduced a major monetary stimulus package, reintroducing quantitative easing and cutting its key deposit rate. In details, the ECB announced on Thursday that it will cut its main deposit rate by 10 basis points  to-0.5% in addition of buying  $22B of bonds every month. As a result, the yields on 5Y and 10Y US treasuries increased from 1.43% and 1.57% to 1.65% and 1.79%, respectively.

As such, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparables widen from last week’s 1,487 and 1,163 bps, to 1,695 and 1,236 bps this week.

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

Weekly Change of Lebanese Eurobonds Prices