Lebanese Eurobonds’ Yields Climbed amid Growing Currency Arbitrage and Political Bickering 

The BLOM Bond Index (BBI), a market value-weighted index that tracks the performance of Lebanese Eurobonds (excluding coupon payments), retreated by a weekly 4.59%, to close at 16.82 points by June 25th. In contrast, the JP Morgan EMBI picked up from last week’s 862.8 points to 864.67 points over the same period. In fact, the Lebanese economy this week witnessed multiple shocks, which included the continued weakening of the Lebanese lira (LL) against the US dollar, the intensified  political bickering and the worrisome financial front of the country.

In detail, the USD/LBP crossed the threshold of LL6,000 this week as the arrangement between the BDL and money exchangers was halted on Tuesday with speculation on the dollar growing exponentially. In turn, the bickering among the political elites came to the forefront, further obstructing any forward-looking decisions and/or immediate actions to help save the economy as some country leaders boycotted the meeting called for by the country’s president this week.

Against this backdrop, yields on the 5 year (5Y) and 10Y Lebanese Eurobonds climbed up by 320 basis points and 120 basis points to settle at 104.0% and 47.8%, respectively, by the week ending June 25th.

Meanwhile, demand on US treasuries heightened as concerns grew over spikes in the number of corona-virus cases recorded over the week. Investors’ angst also rose as they perceived the US as struggling to ‘normalize’ the environment with mechanisms  for reopening businesses still unclear and the ongoing social unrest since the Floyd incident. In addition, the US job market also signaled slow recovery with a steady 1.5M seeking unemployment benefits as the spike in corona-virus cases may impede people from getting back to work. 

As a result, the yields on 5Y and 10Y treasuries recorded weekly down ticks of 2 and 3 basis points (bps),  respectively, to end the week at 0.32% and 0.68%.

Correspondingly, the 5Y and 10Y spreads between the yields on Lebanese Eurobonds and their US comparables climbed by 322 bps and 123 bps, to 10,368 bps and 4,712 bps respectively, by June 25th.

Weekly Change of Lebanese Eurobonds Prices

  Prices Weekly Yields Weekly
Maturity Coupon in % 25/06/2020 18/06/2020 Change 25/06/2020 18/06/2020 Change bps
04/10/2022 6.10 18.50 19.38 -4.51% 108.90% 104.53% 436
27/01/2023 6.00 17.85 18.67 -4.38% 98.34% 94.66% 368
22/04/2024 6.65 17.63 18.50 -4.73% 72.37% 69.84% 253
04/11/2024 6.25 17.85 18.58 -3.94% 63.64% 61.84% 180
03/12/2024 7.00 17.25 18.17 -5.05% 67.09% 64.82% 227
26/02/2025 6.20 17.70 18.63 -4.97% 60.64% 58.44% 220
12/06/2025 6.25 18.35 19.27 -4.77% 56.95% 54.98% 197
28/11/2026 6.60 17.70 18.63 -4.97% 50.79% 48.93% 186
23/03/2027 6.85 17.38 18.25 -4.79% 51.01% 49.18% 182
29/11/2027 6.75 17.70 18.33 -3.45% 47.67% 46.45% 122
03/11/2028 6.65 17.70 18.33 -3.45% 44.76% 43.64% 112
26/02/2030 6.65 17.38 18.25 -4.79% 42.95% 41.30% 164
22/04/2031 7.00 17.48 18.08 -3.36% 42.92% 41.84% 108
23/03/2032 7.00 17.70 18.25 -3.01% 41.65% 40.60% 105
02/11/2035 7.05 17.88 18.88 -5.30% 39.98% 38.08% 190
23/03/2037 7.25 17.88 18.88 -5.30% 40.74% 38.74% 200

 

Source: BLOMInvest Bank

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