Lebanon’s BLOM Bond Index (BBI) compiled by BLOMInvest Bank recorded a weekly downtick of 0.04% in the week ending October 3, 2019, to settle at 74.33 points. Meanwhile, JP Morgan Emerging Markets’ Bond Index (EMBI) rose by 0.20% to close the week at 865 points.
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 19% and 14.30%, to 19% and 14.31%, respectively. As for the 5Y CDS, it recorded a increase from 1,243 basis point by September 27, 2019 to 1,268 basis point by October 8, 2019. In fact, the Lebanese Eurobond Market’s performance was driven this week by many events. In fact, the demand for Eurobond grew, after the Central Bank’s issuance of a circular to organize funding for imports of gasoline, wheat and medications. However, the market was negatively affected by the decision of Moody’s to put Lebanon’s Caa1 rating under review for downgrade, saying this reflected recent significant tightening in external financial conditions and a reversal in bank deposit inflows.
In the US, Treasury yields witnessed a significant drop by the end of the week and global bond markets rallied following a series of disappointing economic data rising concerns about U.S. recession. On Tuesday, the U.S Institute of Supply Management’s (ISM) purchasing managers index for the manufacturing sector in September came in at 47.8, its lowest reading since June 2009. On Wednesday, a private sector employment report from Automatic Data Processing showed that 135,000 jobs were created in September, and the average monthly job growth for the past three months also fell to 145,000 from 214,000 for the same time period last year. As a result, market participants are raising their expectations for additional rate cuts from the Federal Reserve, which cut interest rates by a half percentage point so far this year. As such, the yields on 5Y and 10Y US treasuries dropped from 1.59% and 1.70% to 1.34% and 1.54%, respectively
As such, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparables widen from last week’s 1741 and 1260bps, to 1796 and 1277 bps this week.