Lebanon’s BLOM Bond Index (BBI), a market value-weighted index that tracks the performance of the Lebanese government Eurobonds market excluding coupon payment, added a weekly 1.08%, to settle at 51.35 points in the week ending December 05th 2019. On the counterpart, the JP Morgan Emerging Markets’ Bond Index (EMBI) retreated by a marginal 0.07% to close the week at 865.15 points.
The BBI continued its descent through the first week of December 2019 as social unrest continued. The BBI went from last week’s 50.4 points on November 29th, to a new low in the series’ history at 48.64 points on Dec. 03rd. However, the Credit default swaps (CDS) fell from 2,637 basis points (bps) to 2,426 points by December 05th , thereby pointing towards the partial relief witnessed by the markets since President Aoun announced on Dec. 04th that parliamentary consultations will formally begin Monday Dec. 09th, to designate a new prime minister whose initial mission will be forming a new government. It is also worthy to mention that BDL this week issued a Circular instructing banks to lower interest rates on U.S. dollar and Lebanese pound deposits, a first step to stabilize the critical financial situation and address the emerging economic woes thrust centre-stage since the onset of the civic protests.
Despite the weekly improvement recored in the BBI this week on the back of the latest political developments, demand on Lebanese Eurobonds remains frail. While yields on the 5 year (5Y) Eurobonds remained almost stable at highs of 37.1% by December 05th, the yields on 10Y Lebanese Eurobonds dropped by 30 bps to close the week at 21.3%.
In the US, yields on treasuries fluctuated over 2 main developments: yields shot up on the back of news confirming that Phase 1 of a US-China trade deal was being phased out, inclusive of rolling back an amount of tariffs despite tensions over Hong Kong. However, the Institute for Supply Management released the US manufacturing index registering 48.1% in November, down from October’s 48.3% and also below the market forecast that stood at 49.2%. As such, yields on 5Y US treasuries retreated by an incremental 1 bps to 1.61% over the week. By the same token, yields on the 10Y US treasuries gained a marginal 3 bps from last week, to stand at 1.80% by the week ending December 06th 2019.
Against this backdrop, the 5Y spreads between the yield on Lebanese Eurobonds and their US comparables rose by 6 bps to 3,548 points, while the 10Y spreads narrowed by 33 bps to 1,950 bps this week.
Weekly Change of Lebanese Eurobonds Prices
|Maturity ||Coupon in %||05/12/2019||28/11/2019||Change ||05/12/2019||28/11/2019||Change bps|