Lebanon has remained without a fully functioning government since caretaker Prime Minister Hassan Diab submitted his Cabinet’s resignation on Aug. 10 in the aftermath of the deadly explosion that devastated Beirut port and damaged large areas in the capital. Since his designation on Oct. 22 to form a new government, Saad Hariri has encountered major obstacles in his attempts to form a new Cabinet of nonpartisan specialists to be tasked with implementing a series of structural reforms outlined in the French initiative designed to steer Lebanon out of its worst economic and financial crisis since the 1975-90 Civil War.
Meanwhile, Lebanon has entered a two weeks total lockdown to try to curb the spread of coronavirus and prevent Lebanon’s health system from collapsing.
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), slightly rose weekly by 1.09% to stand at 13.94 points by the week ending November 20, 2020. Meanwhile, the JP Morgan EMBI advanced from last week’s 912.72 to 915.15 points this week.
As such, the yields on the 5 year (5Y) Lebanese Eurobonds rose by 150 basis points (bps) to end the week at 69.60%. Meanwhile, the 10Y Lebanese Eurobonds fell by 10 basis points (bps) to 51%.
In the US, the 5Y and 10Y treasury yields decreased from 0.40% and 0.88% to 0.39% and 0.86%, respectively after jobless claims came in higher than expected amid a worsening coronavirus pandemic. In details, the pace of workers filing for unemployment claims picked up last week and was a bit higher than Wall Street had been expecting. As such, jobless claims totaled 742,000 for the week, the Labor Department reported Thursday. Moreover, the decline in yields came also as confirmed deaths from the coronavirus in the U.S. surpassed a quarter of a million. A handful of states and cities in the US are closing nonessential businesses, limiting public and private gatherings and imposing mask mandates to try to slow the spread of the coronavirus.
Worth mentioning that on Monday the US 5Y and 10Y yields slightly increased after Moderna said preliminary phase three trial data shows its coronavirus vaccine is more than 94% effective in preventing the coronavirus. It marked the second drugmaker that announced a potentially effective vaccine.
As such, the 5Y spread between the yield on Lebanese Eurobonds and their US comparables widen from last week’s 6,770 bps to 6,921 bps this week. Meanwhile, the 10Y spread narrowed from last week’s 5,022 bps to 5,014 bps this week.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
Weekly Change of Lebanese Eurobonds Prices
|Maturity||Coupon in %||19/11/2020||12/11/2020||Change||19/11/2020||12/11/2020||Change bps|
Source: BLOMInvest Bank