Prices of Lebanese Eurobonds: Soft Improvement, Yet Yields Remain High as Are the Stakes 

The BLOM Bond Index (BBI) which is a market value-weighted index that tracks the performance of the Lebanese government Eurobonds market excluding coupon payment, increased by 2.4% over the week ending December 13th, to settle at 52.58 points. The weekly rise in the BBI actually outweighed the 1% uptick recorded in the JP Morgan Emerging Markets’ Bond Index (EMBI) to end the week at 873.8 points.

The BBI’s weekly improvement remains ‘’soft’’. It can be partly attributed to the developments carried by the Paris Meeting held this Dec 11th which promised support for Lebanon upon swift government formation and “credible” reforms, and partly to the caretaker PM Hariri’s call on the IMF and World Bank this week for a “rescue plan” entailing  technical assistance and financing to Lebanon’s international trade.  

Moreover, overall market sentiment shyly improved with a concluding session assigned  for next week to finalize the 2020 draft state budget, inclusive of budget reduction recommendations that exclude adding taxes.  

Yet, rising Credit default swaps (CDS) and elevated yields continue to reflect Lebanon’s critical position. For instance, the CDS rose from 2,377 basis points (bps) early-in the week to 2,435 points by December 11th, following news of downgrades. In details, Fitch Ratings and Moody’s each published a report this week on December 11th and 12th. Moody’s downgraded the Baseline Credit Assessment standalone (BCA) and Adjusted BCAs of Bank Audi, BLOM Bank, and Byblos Bank from Caa2 to “Ca” explaining, “[BDL’s recent action] constitutes a deposit default based on the agency’s own definitions”; Fitch Downgraded Lebanon’s Long term Foreign Currency Issuer Default Rating from CCC to “CC” such that, “a government debt restructuring or default is probable owing to acute political uncertainty, de facto capital controls and damaged confidence in the banking sector[…].” In their turn, the yields on 5 year (5Y) and 10Y Lebanese Eurobonds remain high, yet they slipped from last week’s 37.1% and 21.3% to 35.5% and 10.8%, respectively, by the week ending Dec. 13th.

In the US, the yields on 5Y and 10Y US treasuries rose by 11 and 10 basis points, respectively, to stand at 1.73% and 1.9% by December 13th. The weakened demand on US treasuries can be linked to a “very close” deal (phase 1) between the two eoncomic giants, the USA and China, as per comments published by both ends this week. The market has grown very sensitive to developemtns that soften this trade war build-up. It is also worth noting that the increase in yields came alongside the FED keeping its interest rates unchanged this week at the range 1.5% – 1.75%, with no expectation of raising them in the near future.

As such, the 5Y and 10Y spreads between the yields on Lebanese Eurobonds and their US comparables declined by 171 bps and 60 bps to 3,377 bps and 1,890 bps this week.

 

Weekly Change of Lebanese Eurobonds Prices

 PricesWeeklyYieldsWeekly
Maturity Coupon in %12/12/201912/5/2019Change 12/12/201912/5/2019Change bps
4/12/20218.2557.8656.931.63%57.59%58.48%-89
10/4/20226.148.6746.803.99%36.94%38.57%-163
1/27/2023647.9446.533.04%34.49%35.59%-110
4/22/20246.6546.7645.772.17%28.89%29.50%-61
11/4/20246.2546.7645.871.95%26.18%26.67%-49
12/3/20247.0046.6345.332.87%27.29%28.07%-78
2/26/20256.2046.6245.422.64%25.15%25.80%-65
6/12/20256.2547.2546.252.16%24.06%24.56%-50
11/28/20266.6046.4145.422.17%21.99%22.45%-46
3/23/20276.8546.4645.452.23%21.87%22.33%-46
11/29/20276.7546.6245.452.58%20.73%21.23%-50
11/3/20286.6546.5145.422.41%19.61%20.05%-44
2/26/20306.6546.5145.452.34%18.48%18.88%-40
4/22/20317.0046.6245.422.63%18.38%18.83%-45
3/23/20327.0046.5345.532.20%17.90%18.26%-36
11/2/20357.0546.5145.532.16%16.79%17.13%-34
3/23/20377.2546.6045.632.12%16.83%17.16%-33

 

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