On Saturday 7 March 2020, Prime Minister Hassan Diab announced that Lebanon for the first time will not pay a $1.2B Eurobond due on March 9 and will seek to restructure its massive debt which reached $90B in 2019. In fact, BDL foreign cuurencies reached $28.96B Jan.2020 and “have hit critical levels and are needed to meet the basic needs of the Lebanese people”.
Accordingly, the BLOM Bond Index (BBI), a market value-weighted index tracking the performance of the Lebanese government Eurobonds market excluding coupon payments, fell by a weekly 13.13% to stand at 24.29 points by March 12, 2020. In details, the Eurobonds maturing in December 2021 and December 2023, witnessed the highest weekly drops by 17.07% and 17.21% to reach 22.66$ and 21.76$, respectively. As a result , the demand on the 5 year (5Y) and 10Y Lebanese Eurobonds dropped over the past week, as their respective yields rose from 70.40% and 36.40%, to 82% and 40.02%, respectively.
Moreover, the 5Y Lebanon Credit Default Swaps (CDS), dropped this week to 18,390 basis points (bps) after reaching last week an all time high level of 25,058 bps as investors seem to have digested the government’s decision.
In the US, the yields on the 5 year (5Y) and 10Y US treasuries fell by 1 and 4 basis points (bps) to 0.66% and 0.88%, respectively, by the week ending March 13, 2020. Fears over the economic fallout from the Corona Virus outbreak and uncertainty surrounding Washington’s fiscal response continued to drive investors towards the perceived safety of government bonds amid the stock market rout.
President Trump announced on Thursday travel restrictions from most of Europe to the US for 30 days starting Friday. He also pledged to provide financial aid to affected Americans and promised capital and liquidity for small businesses. However, investors were hoping for more decisions. As a result, Shares around the world have plunged and the S&P 500 closed down about 9.5%, its biggest daily drop since the stock market crashed in 1987. The decline has left stocks in the United States firmly in a bear market — a term that signifies a decline of 20 percent from the most recent highs.
Correpondingly, the 5Y and 10Y spread between the yields on Lebanese Eurobonds and their US comparables rose from 6,973 bps and 3,548 bps last week to 8,134 bps and 3,914 bps, respectively.
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 12/03/2020 | 05/03/2020 | Change | 12/03/2020 | 05/03/2020 | Change bps |
| 12/04/2021 | 8.25 | 22.67 | 27.33 | -17.07% | 221.25% | 181.21% | 4004 |
| 04/10/2022 | 6.1 | 21.76 | 26.03 | -16.39% | 86.43% | 74.51% | 1191 |
| 27/01/2023 | 6 | 21.76 | 26.28 | -17.21% | 77.31% | 66.38% | 1093 |
| 22/04/2024 | 6.65 | 22.50 | 25.78 | -12.75% | 57.63% | 51.77% | 586 |
| 04/11/2024 | 6.25 | 22.68 | 26.35 | -13.93% | 51.24% | 45.59% | 565 |
| 03/12/2024 | 7.00 | 22.60 | 26.08 | -13.32% | 52.85% | 47.29% | 556 |
| 26/02/2025 | 6.20 | 22.47 | 25.68 | -12.50% | 49.17% | 44.36% | 481 |
| 12/06/2025 | 6.25 | 23.25 | 26.56 | -12.46% | 46.13% | 41.59% | 454 |
| 28/11/2026 | 6.60 | 22.19 | 25.17 | -11.83% | 41.96% | 38.09% | 387 |
| 23/03/2027 | 6.85 | 22.48 | 25.02 | -10.16% | 41.36% | 38.04% | 332 |
| 29/11/2027 | 6.75 | 21.67 | 24.83 | -12.72% | 40.16% | 36.15% | 402 |
| 03/11/2028 | 6.65 | 22.55 | 25.14 | -10.31% | 36.66% | 33.64% | 302 |
| 26/02/2030 | 6.65 | 22.46 | 25.52 | -12.01% | 34.73% | 31.34% | 339 |
| 22/04/2031 | 7.00 | 22.57 | 25.53 | -11.57% | 34.48% | 31.14% | 335 |
| 23/03/2032 | 7.00 | 22.47 | 24.89 | -9.70% | 33.89% | 31.08% | 282 |
| 02/11/2035 | 7.05 | 22.46 | 24.64 | -8.86% | 32.35% | 29.74% | 261 |
| 23/03/2037 | 7.25 | 22.46 | 24.88 | -9.70% | 32.89% | 29.90% | 299 |
Source: BLOMInvest Bank