Lebanon’s New Government Sparked Conflicting Views and Social Rioting: Eurobond Prices Retreated

The BLOM Bond Index (BBI), a market value-weighted index tracking the performance of the Lebanese government Eurobonds market (excluding coupon payments), slumped by 2.48% to settle at 47.16 points on January 23rd. In fact, the index hit an unprecedented historical low of 47.09 points in the beginning of this week which mainly indicates that investors’ appetite towards Lebanese Eurobonds is growing frail throughout this challenging period. In contrast, the JP Morgan Emerging Markets’ Bond Index (EMBI) stabilized at last week’s 890.68 points.

This week in fact witnessed heightened tensions and social rioting acts in Beirut, especially upon the formation of a new 20-member government announced on the eve of January 21st. Opinions remained divided among citizens and the international community on the new cabinet, while conflicting news and analyses further aggravated the country’s instability. Against this backdrop, the yields on Lebanon’s 5 year (5Y) and 10Y Eurobonds climbed from last week’s 40% and 23.20%, to this week’s 41.4% and 24.3%, respectively. In its turn, Lebanon’s 5Y Credit Default Swaps (CDS), an indication of the investors’ perception towards the sovereign’s default risk, reached unprecedented historical  highs of 2,968 points on January 23rd 2020.

In the US, investors sought safe haven assets and dumped some of their risky positions in Asia this week, on the back of fears that the rapidly spreading Coronoavirus (linked to pneumonia) originating from China may subdue economic growth. In details, yields on the 5Y and 10Y US treasuries fell by 8 and 7 basis points (bps) to 1.55% and 1.74%, respectively, by the week ending Jan. 24th.

As such, the 5Y and 10Y spread between the yields on Lebanese Eurobonds and their US comparables rose by 148 bps and 117 bps to 3,985 bps and 2,256 bps, respectively.

 

Weekly Change of Lebanese Eurobonds Prices 

  Prices Weekly Yields Weekly
Maturity Coupon in % 23/01/2020 16/01/2020 Change 23/01/2020 16/01/2020 Change bps
12/04/2021 8.25 54.03 56.59 -4.52% 70.11% 63.92% 618
04/10/2022 6.1 46.04 46.98 -1.99% 40.91% 39.68% 123
27/01/2023 6 42.92 43.73 -1.85% 40.48% 39.42% 106
22/04/2024 6.65 41.82 42.66 -1.97% 33.12% 32.34% 77
04/11/2024 6.25 41.97 42.73 -1.76% 29.78% 29.17% 61
03/12/2024 7.00 40.88 42.26 -3.25% 31.66% 30.57% 109
26/02/2025 6.20 41.52 42.10 -1.38% 28.78% 28.31% 47
12/06/2025 6.25 41.89 42.91 -2.38% 27.59% 26.88% 72
28/11/2026 6.60 41.27 41.79 -1.25% 24.88% 24.55% 33
23/03/2027 6.85 41.03 42.09 -2.53% 24.88% 24.25% 63
29/11/2027 6.75 40.86 41.82 -2.30% 23.68% 23.14% 53
03/11/2028 6.65 41.06 41.79 -1.75% 22.19% 21.81% 38
26/02/2030 6.65 40.22 41.32 -2.66% 21.27% 20.73% 53
22/04/2031 7.00 40.87 41.42 -1.33% 20.83% 20.56% 26
23/03/2032 7.00 40.93 41.81 -2.12% 20.21% 19.81% 40
02/11/2035 7.05 40.89 41.91 -2.45% 18.93% 18.51% 43
23/03/2037 7.25 40.85 41.96 -2.65% 19.03% 18.56% 47

 

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