BBI Down this Week Amid Health lAnd Economic Crisis

The BLOM Bond Index (BBI), a market value-weighted index tracking the performance of the Lebanese government Eurobonds market excluding coupon payments, witnessed a significant weekly drop by 30.14% to stand at 16.97 points by March 19, 2020. 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 82% and 40.02%, to 112.50% and 53%, respectively.

Lebanese authorities announced a new phase in its fight against coronavirus by declaring a state of emergency in an attempt to control the spread of the virus. In details, a complete lockdown was announced for 15 days, excluding bakeries, pharmacies, food stores and health institutions. In addition, all entries and exits to the country including borders, airports and ports will be closed between March 18-29.

On the economic front,the Cabinet Thursday discussed a draft law on capital controls that aims to organize the relationship between banks and clients amid an economic and financial crisis. Faced with a dollar liquidity crunch, banks have imposed informal controls on dollar withdrawals and transfers abroad since October 2019 amid widespread anti-government protests and Lebanon’s worst economic crisis in decades.

Moreover,  the 5Y Lebanon Credit Default Swaps (CDS)  dropped this week to 16,894 basis points (bps) compared to 18,390 bps last week.

 In the US, the week started by the Fed decision to slash its benchmark interest rate to near 0% in order to safeguard the economy from the impact of Coronavirus. In addition to this, the Fed has relaunched its quantitative easing program and will buy $700 billion worth of assets that entail Treasuries and mortgage-backed securities. However, despite this move, stocks fell sharply Monday — Trading was halted for 15 minutes shortly after opening as a then-8% drop on the S&P 500 triggered a so-called circuit breaker. It was the third time in the last week a circuit breaker was triggered. Moreover, surging demand drove up the price of US Treasuries, dragging down their yields and sending the entire yield curve below 1% for the first time ever.

However, the US treasury yields rose on Wednesday as investors were looking to raise cash, with many selling their most liquid assets first such as government bonds and amid worries about the extra flood government debt issues to finance the fiscal stimulus packages. As a result,  the yields on the 5 year (5Y) and 10Y US treasuries ended the week at 0.66% and 1.12%, respectively.

Correpondingly, the 5Y and 10Y spread between the yields on Lebanese Eurobonds and their US comparables rose from 8,134 bps and 3,914 bps last week to 11,384 bps and 5,188 bps, respectively.

5 Year Credit Default Swaps, Mid-Prices (in basis points

3/19/2020 3/12/2020
Lebanon             16,894               18,390
KSA 64 64
Dubai 351 223
Brazil 332 290
Turkey 469 423

 

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields Weekly
Maturity Coupon in % 19/03/2020 12/03/2020 Change 19/03/2020 12/03/2020 Change bps
4/12/2021 8.25 18.08 22.67 -20.24% 276.26% 221.25% 5501
10/4/2022 6.1 13.71 21.76 -37.00% 120.11% 86.43% 3368
1/27/2023 6 13.73 21.76 -36.90% 106.59% 77.31% 2928
4/22/2024 6.65 14.15 22.50 -37.10% 79.69% 57.63% 2207
11/4/2024 6.25 15.24 22.68 -32.80% 67.77% 51.24% 1653
12/3/2024 7.00 16.66 22.60 -26.30% 65.81% 52.85% 1296
2/26/2025 6.20 15.70 22.47 -30.14% 63.36% 49.17% 1419
6/12/2025 6.25 16.45 23.25 -29.24% 59.06% 46.13% 1293
11/28/2026 6.60 13.88 22.19 -37.45% 58.99% 41.96% 1703
3/23/2027 6.85 16.18 22.48 -28.02% 52.90% 41.36% 1154
11/29/2027 6.75 15.08 21.67 -30.42% 52.75% 40.16% 1258
11/3/2028 6.65 16.12 22.55 -28.50% 47.49% 36.66% 1083
2/26/2030 6.65 16.11 22.46 -28.27% 45.32% 34.73% 1059
4/22/2031 7.00 16.88 22.57 -25.22% 43.99% 34.48% 951
3/23/2032 7.00 16.90 22.47 -24.80% 43.33% 33.89% 944
11/2/2035 7.05 15.62 22.46 -30.45% 45.35% 32.35% 1300
3/23/2037 7.25 15.73 22.46 -29.97% 46.27% 32.89% 1338

 

Source: BLOMInvest Bank

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