Social Unrest on Beirut Streets upon Parliamentary Consultations Drives Subdued Eurobond Prices

The BLOM Bond Index (BBI), a market value-weighted index that tracks the performance of the Lebanese government Euro bonds market excluding coupon payments, recorded a weekly down tick of 3.61% to end the business week on December 19th at 50.68 points. Meanwhile, the JP Morgan Emerging Markets’ Bond Index (EMBI) rose by 0.52% to end the week at 878.37 points.

The BBI’s weekly decline came on the back of rising social and political tensions which heightened prior to the parliamentary consultations that were scheduled on December 16th. The consultations however were postponed to Thursday Dec. 19th on the back of rioting acts erupting on the streets of Beirut starting Sunday 15th, alongside Hariri’s request for further government formation discussions, noting this last was the most expected candidate to be designated PM of the new government over the past week.

In fact, the Credit default swaps (CDS) continued to reflect Lebanon’s critical crossroads especially regarding the formation of a new government that gets international and local approval. Particularly, the CDS rose from last week’s 2,294 basis points (bps) to 2,326 bps by December 16th . And by December 19th, the 5Y CDS went further up to the week’s high of 2,385 bps as S&P Global Ratings downgraded foreign and local currency-issuer credit ratings on three Lebanese banks to “SD” (selective default) and also revised downwards Lebanon’s banking risk industry score (BICRA) to a “10” out of 10, instead of 8 out of 10, with 10 denoting highest risk on a scale of 1 to 10. Later that night of the 19th, the candidate Hassan Diab was successfully designated as new PM with the prime mission of forming a government capable of driving needed reforms and working with all parties to do so.   

In the US, yields on 5Y and 10Y US treasuries fluctuated on the back of multiple events, with the latter rising by a marginal 2bps to 1.92% while the former remained unchanged at last week’s 1.73%. The demand on US treasuries rose over the week ending December 19th mainly on the back of the House of Representatives’ decision to impeach President Donald Trump Wednesday 18th on the account of abuse of power and obstruction of justice. Nonetheless, yields went back up as investors shrugged off the impeachment drama, noting that Trump’s removal from office is highly unlikely at the Senate.

As such, the 5Y and 10Y spreads between the yields on Lebanese Eurobonds and their US comparables rose by 190 bps and 93 bps to 3,56 bps and 1,983 bps this week.

Weekly Change of Lebanese Eurobonds Prices

Maturity Coupon in %19/12/201912/12/2019Change 19/12/201912/12/2019Change bps


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