Federal Reserve to Reduce Its Monthly Bond Purchases

This week, Lebanon witnessed a deadly clash following the protest against the judge investigating Beirut blast, which took place on August 4^th, 2020. The clash resulted in six dead and hundreds injured after aggravated street fight. Moreover, the protest witnessed snipers shot from buildings, bullets stabbed apartment windows in Tayouneh and Ain el-Remaneh neighborhood and schools were evacuated followed by rushing ambulances.

We add that tension over the clash had built sectarian anger among the Lebanese which put up with fear of civil war. Not to forget that all this adds up to Lebanon’s currency collapse, hyperinflation, mounting poverty and fuel crisis leading to prolonged electricity blackouts.

Given these disruptions, 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 7.75% to stand at 16.23 points by the week ending October 21, 2021 compared to the week of October 7, 2021. Meanwhile, the JP Morgan EMBI slightly dwindled from 916.05 to 913.94 during the period.

In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds increased by 340 and 306 basis points (bps), respectively, to end the week of October 21 at 65.15% and 48.51%.

In the US, the yields on 5 year treasuries and 10 year US treasuries recorded a slight uptick from the week ending October 07, 2021 from 1.02% to 1.23% and 1.58% to 1.68% by the week ending October 21, respectively.

This week in the U.S. market, the number of Americans filing new claims for unemployment benefits dropped to a 19-month low last week, pointing to a tightening labor market were companies are struggling to hire workers.

Moreover, the Federal Reserve announced that it might set new measures starting November to shore up the economy. The Fed is widely expected to announce a timetable for reducing its monthly bond purchases as it has helped keep mortgage rates at ultra-low levels for much of the last 18 months. As such, the yield on the 10-year Treasury note has risen steadily since the central bank’s last policy update in mid-September, reaching 1.64% this week. Home loan rates, which tend to track moves in the 10-year Treasury yield, have also moved higher.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downward move from 6,073 bps and 4,387 bps to 6,392 bps and 4,683 respectively.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank