Blom Bond Index Down this week Amid Deep Financial Crisis

The BLOM Bond Index (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market (excluding coupon payments), dropped weekly by 4.70%  to stand at 16.03 points by the week ending July 2, 2020. Meanwhile, the JP Morgan EMBI advanced from last week’s 864.67 to 872.53 points this week.

As such, the yields on the 5 year (5Y) and 10Y Lebanese Eurobonds fell by 600 basis points (bps) and 200bps, to end the week at 110% and 49.8%, respectively. In fact, the index decline is mainly attributed to the country’s deep financial crisis and currency deterioration . The highlight of this week was the resignation of Alain Bifani, the director of Lebanon’s finance ministry and the main architect of a government rescue plan that formed the basis of negotiations for an aid programme from the International Monetary Fund (IMF). Moreover, the head of the International Monetary Fund (IMF) , Kristalina Georgieva, stated that its not  clear whether it is possible for the country’s leaders, active parties, and society to agree on implementing the reforms needed to stabilize the economy and boost economic growth. Meanwhile, the Lebanese pound recorded a new low Thursday, selling at nearly 10,000 for the dollar in the parallel market, against 1,500 still in the official market.

In the US, Treasury yields fell on Thursday driven by concerns that recent U.S. labor-market gains seen in June’s job report could be undermined if the nation fails to bring the coronavirus under control. In details, the U.S. Labor Department reported the U.S. economy had added 4.8M jobs last month and the unemployment rate fell to 11.1%, dropping for a second month in a row. However, analysts cautioned that the labor market could struggle to recover swiftly if the spreading COVID-19 pandemic slows down consumer spending as Americans stay in their homes. As a result, the yields on 5Y treasuries dropped by 3 bps to end the week at 0.29% while the 10Y treasuries ended the week unchanged at 0.68%.

Correspondingly, the 5Y and 10Y spreads between the yields on Lebanese Eurobonds and their US comparables widen by 603bps and 200bps, to stand at 10,971 bps and 4,912 bps, respectively, by July 03 12.

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

Weekly Change of Lebanese Eurobonds Prices

Source: BLOMInvest Bank