Resurgence of Covid-19 Cases in the US Chip Away Signs of a Potential Recovery: Stable Demand on Treasuries this Week

The BLOM Bond Index (BBI), BLOMInvest Bank’s market value-weighted index which tracks the performance of the Lebanese government Eurobonds’ market (excluding coupon payments), dropped slightly by 0.19% to 15.79 points by July 16^th 2020. In its turn, the JP Morgan EMBI advanced shyly by a weekly 0.33% to 877.8 points this week.

The BBI remains at very low levels. Notably this week, the country and the government in particular were grappling with the recent resignation of the General Director of Finance ALain Bifani, given the country’s deteriorating fiscal and financial positions. In tandem, a high number of coronavirus cases also broke out across Lebanon this week further jeopardizing the country’s overall stability.  It followed that the yields on the 5 year (5Y) Lebanese Eurobonds stabilized at 110% while the 10Y Lebanese Eurobonds retreated by 10 basis points (bps) to end the week at 50.60%, respectively.

In the US, treasury yields this week stabilized at last week’s 0.28% and 0.62%, respectively, owing it to two main reasons: the release of US June retails sales data and unemployment figures. In detail, retail sales in the US published this week revealed a good increase of 7.5% in June which outweighed the forecasted 5%. However, the demand on treasuries remained capped despite the upbeat sales as the market witnessed growing fears that the re-opneing of businesses may fuel a resurgence of coronavirus cases. Moreover, the jobless claims in the week ending July 11^th stood at 1.3 million, a little over the forecasted 1.25M. Nonetheless, these claims remain substantial when compared to February’s 200,000 claims pre-the pandemic.    

Accordingly, the 5Y spreads between Lebanese Eurobonds and their US counterparts stabilized at last week’s 10,972 bps while the 10Y fell from last week’s 5,008 bps to 4,998 bps.   

Weekly Change of Lebanese Eurobonds Prices

Source: BLOMInvest Bank