As Lebanon’s currency has collapsed, country’s economic distress is growing more seriously, and the exchange rate in the parallel market reaching 12,100 this week, thus sucking value from people’s salaries as prices of local and foreign goods skyrocket, consequently pushing basic necessities out of reach. Moreover, Food prices have risen almost 400 percent compared with a year earlier, while prices for clothing have reached 560 percent and hospitality sector soaring more than 600 percent.
On the political front, political leaders on Sunday traded insults to one another over the lack of progress in the government formation thus showing no sign of promising efforts. Moreover, Judge Ghada Aoun, declared on Tuesday that she is capable of grasping information that is crucial to investigations of money laundering and transferring of US Dollars abroad by the Mecattaf Holding Group.
However, 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) observed a surge this week by 6.46% to stand at 12.72 points by the week ending 22 April 2021. Meanwhile, the JP Morgan EMBI went up by 0.20% by increasing from 907.02 last week to 908.83 points this week.
As a result, the yield of the 5 years (5Y) decreased during this period from 79.50% to 76.30%, while the yield of the 10 years (10Y) Lebanese Eurobonds increased from 62.85% to 60.30% this week.
Regarding the US market this week, US Treasury yields slightly upticked, with the 5Y showing no change and 10Y bond yield rising from 1.56% to 1.57%, respectively.
In the US, Fed Chair Powell exclusively said that the US is expected to witness higher inflation rate later this year as a result of the recovering economy post pandemic and the increase in prices. However, Federal Reserve is committed to limiting the overshoot in inflation, substantially not exceeding 2%. Moreover, David Roche, president of investment firm Independent Strategy, said on April 21st, that 10-year bond yields could easily double following the rising inflation.
It is worth adding that Department of Labor’s weekly report shows that another 547,000 Americans filed new unemployment claims, marking a 13-month pandemic-era low. More than 17 million Americans still collecting unemployment benefits, bearing in mind that the federal Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation program will each expire in September.
In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable went down from 7,869 bps to 7,549 bps; moreover the 10Y spread dropped from 6,129 bps to 5,873 bps.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
|5Y Credit Default Swaps (CDS)|
|Lebanon|| .|| .|
| Source: Bloomberg|
Weekly Change of Lebanese Eurobonds Prices
|Maturity ||Coupon in %||22/04/2021||15/04/2021||Change ||22/04/2021||15/04/2021||Change bps|
Source: BLOMInvest Bank