US Yields up as Fed rate decision is watched closely

In Lebanon, constant disappointment on the political front prevailed. Failure to form a government is raising social unrest which has taken its toll on the Lebanese economic situation. In turn, the performance of Eurobonds market has been on a downtrend, owing it to multiple headwinds. The main development were prominently political, but their impact sheer economic. In fact, the Eurobonds performance reflects the loss of confidence in Lebanese leaders that might be reversed  by applying the required reforms to stop the collapse.

As such, 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), decreased by 0.43%  to stand at 13.95 points by the week ending June 17, 2021 compared to the week of June 10, 2021. Meanwhile, the JP Morgan EMBI retreated from 925.89 to 922.89 during the period.

As such, the yields on the 5 year (5Y) and 10 year (10Y) Lebanese Eurobonds increased by 120 basis points (bps) and 32 basis points (bps)  to end the period at 72.40%. and 55.72%, respectively.

In the US, the yields on 5 year and 10 year US treasuries, recorderd a increase  from the week ending of 10 June 2021 from 0.73% and 1.45% to end of the of week of 17 June, 2021 to 0.90% and 1.52%, respectively. On the whole, yields’ market was moved this week by the declaration of the Fed regarding a rise in interest rate that would come sooner than expected in 2024. As a result, bond traders were on a siginificant sell off as commodities prices were pushed up. Hence, Bond yields often move in tandem with commodities which are taking place as a barometer for the economic growth worldwide.

As such, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable went up from the week of 10 June, 2021 from  7,047 bps and 5,395 bps to 7,150, bps and 5,420 bps, respectively.

Weekly Change of Lebanese Eurobonds Prices

Source: BLOMInvest Bank