The US 5-Year and 10-Year Treasury Yields Decreased due to stable inflation expectations

Another unsuccessful attempt to form a new Cabinet this week triggered economic concerns on Tuesday, after President Michel Aoun declared that they failed again to agree on a government formation. As a result, the exchange rate jumped from around 11,000 USD/LBP to 14,000 USD/LBP in hours, however, it slowly started to stabilize and rose against the dollar to reach 12,700 LBP by yesterday.

Consequently, the BLOM Bond Indes (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market ( excluding coupon payments) observed a slight uptick this week by 0.32% to stand at 12.63 points by the week ending 25 March 2021. Meanwhile, the JP Morgan EMBI added 0.15%  by going from 892.35 last week to 893.71 points this week.

As such, the yield of the 5 years (5Y) Lebanese Eurobonds increased during this period from 76.05% to 76.40%, while the yield of the 10 years (10Y) Lebanese Eurobonds decreased from 59.62% to 59.50% this week.

Regarding the US market this week,  US Treasury yields slightly decreased with the 5Y and 10Y bond yield dropping from 0.86% and 1.71% to 0.82% and 1.63%, respectively. The decline was mainly driven by the stable inflation expectations. Moreover, this change came as the US Federal Reserve Chair Mr. Powell signaled that the Fed would roll back on its support programs due to the acceleration in vaccine distribution that is pushing the economy to recover faster than expected. As such, the US Labor Deparment reported this week that claims for unemployment insurance surprisingly fell sharply amid hints that hiring has picked up in the US economy.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable went up from 7,519 bps to 7,558 bps while the 10Y spread slightly went down from 5,791 bps to 5,787 bps.

 

 5 Year Credit Default Swaps, Mid-Prices (in basis points)

 

5Y Credit Default Swaps (CDS)
25/03/202118/03/2021
Lebanon . .
KSA7062
Dubai10699
Brazil220197
Turkey462308
 Source: Bloomberg

 

Weekly Change of Lebanese Eurobonds Prices

 

 PricesWeeklyYields Weekly
Maturity Coupon in %25/03/202118/03/2021Change 25/03/202118/03/2021Change bps
27/01/20236.0012.2812.260.10%179.80%177.93%186
22/04/20246.6512.1812.32-1.13%110.64%109.14%149
04/11/20246.2512.2212.26-0.38%94.57%93.87%70
03/12/20247.0011.9912.02-0.27%97.40%96.82%58
26/02/20256.2012.2412.36-0.98%88.29%87.47%82
12/06/20256.2512.5312.54-0.06%82.28%81.96%32
28/11/20266.6012.2012.24-0.38%70.48%70.14%34
23/03/20276.8512.1912.27-0.65%70.27%69.79%48
29/11/20276.7512.1612.120.36%65.79%65.86%-7
03/11/20286.6512.1312.20-0.58%61.95%61.58%37
26/02/20306.6512.1612.25-0.71%58.76%58.42%33
22/04/20317.0012.1412.120.18%59.63%59.65%-2
23/03/20327.0012.1212.19-0.56%59.17%58.82%35
02/11/20357.0512.1912.150.40%57.72%57.89%-17
23/03/20377.2512.2512.230.16%59.29%59.34%-5

 

 

Source: BLOMInvest Bank

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