It’s been more than 2 weeks since the Prime Minister Hassan Diab submitted the resignation of his government and consultations with parliamentary blocks on designating a new premier didn’t start yet. This political deadlock is preventing the country from implementing long-delayed structural reforms needed to unlock billions of dollars in promised aid from international donors to the crises-ridden country.
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 0.26% to stand at 15.10 points by the week ending August 27, 2020. Meanwhile, the JP Morgan EMBI declined from last week’s 901.27 to 899.39 points this week .
In the US, the 5Y and 10Y treasury yields witnessed a significant rise this week to reach 0.31% and 0.74% ( the highest level since June.17, 2020) compared to 0.26% and 0.65%, respectively. In fact, in order to make up for periods of undershooting , the Federal Reserve’s announced that it would allow inflation to run above its longstanding target (2%) by holding short-term rates very low for a long time. Worth mentioning that the increase in long term treasury bonds was higher than short term treasury bonds. In fact, the possibility of higher inflation erodes the real return that bondholders earn on their fixed interest payments for government debt.
As such, the 5Y spread between the yield on Lebanese Eurobonds and their US comparables expanded from last week’s 6,123 bps to 6,199 bps this week. Meawhile, the 10 spread narrowed from last week’s 4,675 bps to 4,624 bps this week
5 Year Credit Default Swaps, Mid-Prices (in basis points)
| 8/27/2020 | 8/20/2020 | |
| Lebanon | N/A | N/A |
| KSA | 83 | 89 |
| Dubai | 165 | 175 |
| Brazil | 223 | 232 |
| Turkey | 534 | 569 |
| Source: Bloomberg | ||
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 27/08/2020 | 20/08/2020 | Change | 27/08/2020 | 20/08/2020 | Change bps |
| 10/4/2022 | 6.10 | 17.10 | 17.18 | -0.47% | 125.00% | 123.32% | 167 |
| 1/27/2023 | 6.00 | 16.30 | 16.71 | -2.45% | 112.03% | 109.35% | 268 |
| 4/22/2024 | 6.65 | 15.38 | 15.38 | 0.00% | 82.27% | 81.90% | 37 |
| 11/4/2024 | 6.25 | 15.95 | 15.83 | 0.72% | 70.73% | 70.81% | -8 |
| 12/3/2024 | 7.00 | 15.95 | 15.83 | 0.73% | 72.57% | 72.70% | -13 |
| 2/26/2025 | 6.20 | 15.80 | 15.83 | -0.21% | 67.57% | 67.22% | 35 |
| 6/12/2025 | 6.25 | 16.60 | 16.71 | -0.65% | 62.35% | 61.91% | 44 |
| 11/28/2026 | 6.60 | 15.70 | 15.83 | -0.85% | 56.02% | 55.60% | 43 |
| 3/23/2027 | 6.85 | 15.38 | 15.87 | -3.12% | 56.59% | 55.20% | 139 |
| 11/29/2027 | 6.75 | 15.71 | 15.75 | -0.27% | 52.53% | 52.36% | 17 |
| 11/3/2028 | 6.65 | 15.75 | 15.67 | 0.50% | 49.32% | 49.45% | -13 |
| 2/26/2030 | 6.65 | 15.78 | 15.50 | 1.79% | 46.83% | 47.45% | -62 |
| 4/22/2031 | 7.00 | 15.67 | 15.45 | 1.42% | 47.23% | 47.77% | -54 |
| 3/23/2032 | 7.00 | 16.08 | 15.67 | 2.66% | 45.48% | 46.50% | -101 |
| 11/2/2035 | 7.05 | 15.63 | 15.75 | -0.77% | 45.37% | 45.03% | 34 |
| 3/23/2037 | 7.25 | 15.75 | 15.63 | 0.80% | 46.15% | 46.47% | -33 |
Source: BLOMInvest Bank