US Treasury Yields Down As the Coronavirus crisis Escalates

Lebanon’s Finance Ministry held an investor presentation on March 27, 2020 to update the country’s Eurobond holders on the government’s economic plans and the principles for debt restructuring. In details, the presentation is composed of 4 sections mainly covering the current Lebanese situation and developing a recovery plan that it hopes to finalize before the end of the year.

Consequently, the BLOM Bond Index (BBI), BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market excluding coupon payments, recorded a weekly uptick of 10.60% to 19.82 points by April 2, 2020. It followed that the yields on the 5 year (5Y) and 10Y Lebanese Eurobonds dropped from 102.35% and 50.2% last week, to 95% and 48.8%, respectively.

In the US the week started with the U.S. House passing a $2 trillion fiscal stimulus/ disaster relief package, that aim to help U.S. households suffering from job losses as the nation goes into lock down. However, US treasury yields continued to decline during the week as investors are still concerned about the extent of the COVID-19 outbreak’s spread especially after the decision of President Donald Trump to extend the  guidelines on social distancing to the end of April. Moreover, the labour department released a report showing that the number of Americans filing claims for unemployment benefits surged to a record of more than 3 million last week.  As a result,  the yields on the 5 year (5Y) and 10Y US treasuries went from last week’s 0.51% and 0.83% respectively, to 0.39% and 0.63% this week.

Correpondingly, the 5Y and 10Y spread between the yields on Lebanese Eurobonds and their US comparables retreated by the respective 723 bps and 120bps to stand at 9,461 bps and 4,817 bps this week.

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

 Weekly Change of Lebanese Eurobonds Prices

Source: BLOMInvest Bank