The Lebanese pound in the parallel market rose against the dollar at the beginning of this week when former premier Saad Hariri was delegated as a favorite candidate to head the new government and consultations started to take place. However, the Lebanese currency furtherly dropped after parliamentary consultations were postponed on Thursday till 22nd of October; noting that Lebanon is in the middle of its worst economic and financial crisis in decades and has been without a government since 10th of August.
On the monetary front, the Central bank lately issued several circulars. In details, Circular 572 dated 9 October 2020, explains that clients holding US Dollar deposit accounts would be able to settle debit transactions at the equivalent rate in LBP available on the Electronic Platform. Moreover, most Lebanese banks decided this week to impose new limitations on their clients accounts in LBP, accordingly limiting cash withdrawals of their customers between LL2 million and LL4 million monthly. Lebanese banks’ decision followed BDL’s circular that called on lenders to limit their withdrawals based on the size of accounts they have at BDL.
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) dropped significantly this week by 6.02% to stand at 13.59 points by the week ending October 15, 2020. Meanwhile, the JP Morgan EMBI rose from last week’s 894.03 points to 897.11 points this week.
In the US, the 5Y treasury yields and the 10Y treasury yields fell this week from 0.33% and 0.78% to reach 0.32% and 0.74%, respectively, as US drugmakers Eli Lilly and Johnson & Johnson paused clinical trials for Covid-19 leading to delays in the cure plans. In turn, government bond prices edged up as fiscal stimulus negotiations showed a lack of progress. Moreover, new unemployment claims jumped unexpectedly this week, the Department of Labor announced Thursday, for a total of 886,000 new jobless claims — up 77,000 from the last week.
As a result, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparables changed from last week’s 6,517 bps and 4,922 bps to 6,748 bps and 5,256 bps, respectively.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
| 10/15/2020 | 10/8/2020 | |
| Lebanon | N/A | N/A |
| KSA | 76 | 77 |
| Dubai | 143 | 153 |
| Brazil | 224 | 224 |
| Turkey | 529 | 529 |
| Source: Bloomberg | ||
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 15/10/2020 | 08/10/2020 | Change | 15/10/2020 | 08/10/2020 | Change bps |
| 10/4/2022 | 6.10 | 15.00 | 15.83 | -5.24% | 147.40% | 140.70% | 670 |
| 1/27/2023 | 6.00 | 14.28 | 15.38 | -7.16% | 129.19% | 121.97% | 722 |
| 4/22/2024 | 6.65 | 14.25 | 15.17 | -6.06% | 89.67% | 85.58% | 409 |
| 11/4/2024 | 6.25 | 14.33 | 15.15 | -5.45% | 78.20% | 75.06% | 314 |
| 12/3/2024 | 7.00 | 14.08 | 15.04 | -6.36% | 81.07% | 77.31% | 376 |
| 2/26/2025 | 6.20 | 14.25 | 15.02 | -5.13% | 73.77% | 71.06% | 271 |
| 6/12/2025 | 6.25 | 15.05 | 15.76 | -4.51% | 68.03% | 65.78% | 225 |
| 11/28/2026 | 6.60 | 14.12 | 15.14 | -6.76% | 61.20% | 58.15% | 305 |
| 3/23/2027 | 6.85 | 14.38 | 15.11 | -4.86% | 60.09% | 57.93% | 216 |
| 11/29/2027 | 6.75 | 14.12 | 15.14 | -6.76% | 57.42% | 54.46% | 296 |
| 11/3/2028 | 6.65 | 14.15 | 15.35 | -7.82% | 54.10% | 50.77% | 333 |
| 2/26/2030 | 6.65 | 14.13 | 15.18 | -6.95% | 51.26% | 48.36% | 290 |
| 4/22/2031 | 7.00 | 13.94 | 15.27 | -8.70% | 52.74% | 48.70% | 404 |
| 3/23/2032 | 7.00 | 14.06 | 15.34 | -8.36% | 51.39% | 47.60% | 379 |
| 11/2/2035 | 7.05 | 14.50 | 15.11 | -4.04% | 48.99% | 47.07% | 192 |
| 3/23/2037 | 7.25 | 14.50 | 14.86 | -2.42% | 50.11% | 48.95% | 116 |
Source: BLOMInvest Bank