ECB Slow Bonds Purchasing, Making Fed’s Tapering Move in Focus

The Bonds market performance still an indicator of a stress in the economy regardless of some upticks this week since it still swinging in a low level along with the continuous jump in the related weighted average yield of the Eurobonds. Today, Lebanese people are in complete despair as several attempts failed to form a government, though there is a chance of forming one late this week. Moreover, the BLOM Lebanon PMI registered 46.6 in August down from 47.0 in July. The five month low PMI signaled the ongoing challenges facing the private sector in Lebanon during last month.

In turn, the outlook is expected to remain in negative trend. Nevertheless, we hope that by reaching a tipping point, political collaboration would be facilitated as we are in an extremely difficult economic environment. However, no promised international funds would take place if the awaited Cabinet would not implement the necessary reforms and plans.

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), jumped by 5.95%  to stand at 14.25 points by the week ending September 09, 2021 compared to the week of September 02, 2021. Meanwhile, the JP Morgan EMBI slightly decreased from 939.43 to 939.07 during the period.

In addition, the yields on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds decreased by 215 basis points (bps) and 225 (bps) to end up the period at 71.40% and 54.55%, respectively.

In the US, the yields on 5 year and 10 year US treasuries recorded an slight uptick from the week ending September 02, 2021 from 0.78% and 1.29% to 0.79% and 1.30%, respectively, by the week ending September 09.

This week, the U.S. Bonds market was affected by the number of weekly jobless claims fell to a pandemic-period low. In fact, the Federal Reserve watches the unemployment data closely for any tapering move. Adding on that Federal Reserve stated that rising inflation is still being aggravated by a shortage of goods due to slowdown in production. In addition, moderate growth is a result of rising public health concerns during the spread of new Delta variant. However, the European Central Bank announced in this week that it will slow down its bonds buying program before the Fed amid better economic environment in the European zone.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable went down from 7,277 bps and 5,551 bps to 7,061 bps and 5,325 respectively.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank