The process for selecting a new government was delayed given Lebanon’s sectarian politics. In addition, corruption and political instability are key weaknesses adding to the lack of access to foreign exchange and the sharp loss of market value of the Lebanese pound.
On Thursday, Prime Minister-designate Mustapha Adib delayed a decision to step down from forming a new government, hoping that ongoing consultations and cooperation between Lebanon’s sectarian politicians will turn out to be effective. Mustapha Adib’s efforts are supported by France along with French President Emmanuel Macron’s initiative to rescue Lebanon economic, financial and social crises. It is worth mentioning that The international donor community and the IMF are committed in providing Lebanon with financial support to bear the costs of the debt restructuring, upon the appointment of a new government and the implementation of multiple reforms.
As a result, 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) fell this week by 0.72% to stand at 16.59 points by the week ending September 17, 2020. Meanwhile, the JP Morgan EMBI fell from last week’s 904.16 points to 900.09 points this week.
In the US, the 5Y and 10Y treasury yields rose this week to reach 0.28% and 0.69% compared to 0.26% and 0.68%, respectively, as a result of a higher demand for equity. On another note, several economic data showed the continuous recovery in the two world’s largest economies amid the COVID-19 pandemic. Most importantly, on Thursday, the data on the latest U.S. weekly jobless claims showed a slight impovement. In details, First-time claims for unemployment insurance totaled 860,000 in the week ending Sept.12, against an estimation of 875,000, according to economists polled by Dow Jones.
In addition, further boost to the economy will come from the Fed’s decision to continuously buy Treasuries and mortgage backed-securities in order to sustain even market functioning. Moreover, the Federal Reserve promised to keep interest rates near zero for a few years thus encouraging Treasury Yields to uphold. The central bank also announced to run average inflation above 2% for some period of time.
As such, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparables changed from last week’s 5,774 bps and 4,332 bps to 5,792 bps and 4,311 bps, respectively.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
| 9/17/2020 | 9/10/2020 | |
| Lebanon | N/A | N/A |
| KSA | 82 | 83 |
| Dubai | 142 | 157 |
| Brazil | 199 | 208 |
| Turkey | 524 | 513 |
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 17/09/2020 | 10/09/2020 | Change | 17/09/2020 | 10/09/2020 | Change bps |
| 04/10/2022 | 6.10 | 18.00 | 18.13 | -0.70% | 122.27% | 124.21% | -195 |
| 27/01/2023 | 6.00 | 17.71 | 18.01 | -1.69% | 105.97% | 108.07% | -210 |
| 22/04/2024 | 6.65 | 17.25 | 17.38 | -0.73% | 76.47% | 77.22% | -75 |
| 04/11/2024 | 6.25 | 17.46 | 17.80 | -1.92% | 66.16% | 67.30% | -114 |
| 03/12/2024 | 7.00 | 17.42 | 17.58 | -0.94% | 68.33% | 69.01% | -68 |
| 26/02/2025 | 6.20 | 17.53 | 17.70 | -0.99% | 62.87% | 63.47% | -60 |
| 12/06/2025 | 6.25 | 18.46 | 18.50 | -0.23% | 58.21% | 58.47% | -26 |
| 28/11/2026 | 6.60 | 17.60 | 17.70 | -0.56% | 51.65% | 51.95% | -31 |
| 23/03/2027 | 6.85 | 17.38 | 17.38 | 0.00% | 52.01% | 52.12% | -11 |
| 29/11/2027 | 6.75 | 17.50 | 17.70 | -1.13% | 48.24% | 48.71% | -47 |
| 03/11/2028 | 6.65 | 17.17 | 17.48 | -1.76% | 45.69% | 46.36% | -68 |
| 26/02/2030 | 6.65 | 17.13 | 17.00 | 0.74% | 44.13% | 43.88% | 24 |
| 22/04/2031 | 7.00 | 17.30 | 17.33 | -0.14% | 43.48% | 43.57% | -9 |
| 23/03/2032 | 7.00 | 17.25 | 17.55 | -1.71% | 42.24% | 42.92% | -67 |
| 02/11/2035 | 7.05 | 17.38 | 17.50 | -0.71% | 40.82% | 41.11% | -29 |
| 23/03/2037 | 7.25 | 17.50 | 17.63 | -0.71% | 41.46% | 41.78% | -31 |
Source: BLOMInvest Bank