The political deadlock continued to overwhelm the situation in Lebanon with the absence of government formation. In details, forming a new government is much needed in order to apply the necessary reforms and speed up negotiations with the IMF. Failing to do so will have catastrophic socio-economic impacts; starting with more deterioration of the Lebanese pound and ending in the threat of food security of the Lebanese people.
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), increased weekly by 0.61% to stand at 13.14 points in the week ending December 17, 2020. Meanwhile, the JP Morgan EMBI advanced from last week’s 922.53 to 930.08 points this week.
As such, the yields of the 5 year (5Y) and 10 year (10Y) Lebanese Eurobonds remained stable this week at 69.40% and 53.40%, respectively.
In the US, the yields on 5 year (5Y) US treasuries, recorded a weekly decrease from 0.39% to 0.38%, while the 10 year yield increased this week from 0.92% to 0.94%.In fact, bond prices and yield are inversely related, while price goes up, yield goes down. US inflation has a great impact on the US bond market. In details, if investors are expecting an expansion in inflation rate, the demand on US bonds will drop, and yield will increase (Bonds typically provide investors with a fixed stream of interest payments, which become less valuable as the overall cost of goods and services accelerates).However, in the meantime and with the increase of unemployment rate in the US, it may be some time before workers are in a position to push for wage increases. As a result, investors are not expecting inflation rate to surge, and the US bond price will remain stable for the upcoming months.
It is worth mentioning, that long-term yields climbed after the Federal Reserve pledged to maintain its bond-buying programs until the economy returns to full employment.
As such, the 5Y spread between the yield on Lebanese Eurobonds and their US comparables widened from last week’s from 6,901, bps to 6,902 bps while the 10Y spread shrank from 5,248 bps to 5,246 bps.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
| 17/12/2020 | 10/12/2020 | |
| Lebanon | N/A | N/A |
| KSA | 65 | 65 |
| Dubai | 110 | 114 |
| Brazil | 148 | 155 |
| Turkey | 333 | 385 |
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 17/12/2020 | 10/12/2020 | Change | 17/12/2020 | 10/12/2020 | Change bps |
| 04/10/2022 | 6.10 | 13.81 | 14.11 | -2.12% | 170.96% | 166.59% | 438 |
| 27/01/2023 | 6.00 | 14.46 | 13.77 | 5.02% | 139.17% | 142.24% | -307 |
| 22/04/2024 | 6.65 | 14.31 | 13.97 | 2.43% | 92.63% | 93.67% | -104 |
| 04/11/2024 | 6.25 | 14.13 | 13.81 | 2.29% | 81.32% | 82.23% | -91 |
| 03/12/2024 | 7.00 | 13.89 | 13.75 | 1.00% | 84.41% | 84.74% | -33 |
| 26/02/2025 | 6.20 | 14.10 | 13.83 | 1.97% | 76.37% | 77.06% | -68 |
| 12/06/2025 | 6.25 | 14.29 | 14.23 | 0.42% | 72.55% | 72.55% | 0 |
| 28/11/2026 | 6.60 | 14.02 | 13.87 | 1.10% | 62.56% | 62.96% | -41 |
| 23/03/2027 | 6.85 | 13.68 | 13.56 | 0.83% | 62.87% | 63.15% | -28 |
| 29/11/2027 | 6.75 | 13.50 | 13.62 | -0.88% | 60.08% | 59.66% | 42 |
| 03/11/2028 | 6.65 | 13.53 | 13.52 | 0.07% | 56.23% | 56.24% | -1 |
| 26/02/2030 | 6.65 | 13.79 | 13.81 | -0.14% | 52.46% | 52.36% | 10 |
| 22/04/2031 | 7.00 | 13.54 | 13.52 | 0.17% | 53.85% | 53.93% | -8 |
| 23/03/2032 | 7.00 | 13.67 | 13.55 | 0.89% | 52.55% | 52.96% | -41 |
| 02/11/2035 | 7.05 | 13.55 | 13.75 | -1.45% | 52.08% | 51.38% | 70 |
| 23/03/2037 | 7.25 | 13.80 | 13.75 | 0.39% | 52.30% | 52.50% | -20 |
Source: BLOMInvest Bank