US Treasury Yields Fluctuate: Optimism over Coronavirus Vaccines Offset by the Pandemic’s Looming Economic and Geopolitcal Fallout

After imposing a four-day shutdown starting Thursday May 14th 2020 to fight the coronavirus outbreak aggravating across the country, Lebanon gradually reopened the economy on May 18th. Notably over the week, the country had completed 5 meetings with the IMF which carried mixed results, noting that the government and BDL disagreed on some of the figures presented to the IMF before they both made their amends. On another front, the Deputy Head of the Syndicate of Money Changers Elias Srour was arrested. This followed the arrest of the Head of the Syndicate Mahmoud Mrad on May 8th for allegedly manipulating the parallel market exchange rate.

Such multi-faceted disruptions were undoubtedly priced-in the weak perfromance of Lebanese Eurobonds over the week. In fact, the BLOM Bond Index (BBI), BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market excluding coupon payments, slumped by a weekly 6.47% to an all-time low of 15.90 points by May 21st 2020. Consequently, yields on the 5 year (5Y) and 10Y Lebanese Eurobonds went from last week’s 100.6% and 47% to 106.6% and 49.20%, respectively, this week.

In the US, demand on treasuries fluctuated as the week was packed with developments; and this was apparent from the yields on the 5 year (5Y) and 10Y US treasuries which added a marginal 4 and 5 basis points (bps), respectively, before settling at 0.35% and 0.68% in the week ending May 21st.

On the economic front, yields were pulled down as the economic fallout from the coronavirus loomed with a notable weekly 2.4M workers filing for unemployment claims despite gradual lifting of curbs on some businesses. Moreover, demand for treasuries partially edged-up as investors worried over the impact of the harsh 20-page report issued by the White House this week, in which the US attacks the Chinese government and its policies on all fronts. Moreover, concerns grew further as president Trump threatened to cut off all  US funding from the WHO amid the continued feud with China over the virus.   

On the upside, US treasury yields managed to partially rebound with optimistic news on experimental coronavirus vaccines developed by Moderna and Astrazeneca, both of which recorded successful first human trials this week and forecast promising results in the coming months.

Correspondingly, the 5Y and 10Y spread between the yields on Lebanese Eurobonds and their US comparables rose by 596 bps and 215bps, to stand at 10,625 bps and 4,852 bps, respctively, by May 21st.

 

Weekly Change of Lebanese Eurobonds Prices

 

  Prices Weekly Yields Weekly
Maturity Coupon in % 21/05/2020 14/05/2020 Change 21/05/2020 14/05/2020 Change bps
04/10/2022 6.10 16.50 17.75 102.08% 113.54% 107.13% 641
27/01/2023 6.00 17.08 18.17 88.70% 97.90% 93.13% 476
22/04/2024 6.65 16.50 17.75 68.67% 74.51% 70.67% 385
04/11/2024 6.25 17.08 18.17 60.03% 64.81% 61.94% 288
03/12/2024 7.00 16.96 17.92 63.15% 67.21% 64.46% 275
26/02/2025 6.20 16.50 17.75 58.26% 62.75% 59.55% 320
12/06/2025 6.25 17.88 18.92 53.34% 57.28% 54.89% 238
28/11/2026 6.60 16.98 18.02 48.36% 52.01% 49.72% 230
23/03/2027 6.85 16.50 17.75 49.27% 52.65% 49.87% 278
29/11/2027 6.75 16.98 18.03 45.58% 48.99% 46.77% 223
03/11/2028 6.65 16.98 18.02 42.99% 46.17% 44.09% 208
26/02/2030 6.65 16.50 17.75 41.70% 44.62% 42.08% 255
22/04/2031 7.00 16.63 17.75 40.96% 44.87% 42.48% 239
23/03/2032 7.00 16.98 18.02 40.24% 43.18% 41.01% 217
02/11/2035 7.05 16.50 17.75 39.97% 43.24% 40.38% 286
23/03/2037 7.25 16.50 17.75 40.87% 44.07% 41.10% 297

Source: BLOMInvest Bank

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