Investors Must be Cautious as Fed May End Its Loose Monetary Policy

28/10/202121/10/2021 ChangeYear to Date
BLOM Bond Index (BBI)15.8016.23-2.63%11.46%
Weighted Yield          65.97%64.57%2.17%-16.89%
Weighted Spread             6,591              6,4512.17%-20.38%


28/10/202121/10/2021 Change
JP Morgan EMBI921.64913.940.84%
5Y LEB65.36%65.15%21
10Y LEB49.85%48.51%134
5Y US1.18%1.23%-5
10Y US1.57%1.68%-11
5Y SPREAD                      6,418                        6,39226
10Y SPREAD                      4,828                        4,683145

This week, Lebanon returned to the same government’s deadlock, paralyzed by tensions around the port investigation and the deadly clash occurred last week.  Moreover and unsurprisingly, the US has imposed sanctions on two Lebanese personalities and a lawmaker over large scale of corruption. In addition, Qatar decided to stop import of some vegetables from Lebanon as tests showed results are not in line with the required specifications.

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 2.63% to stand at 15.80 points by the week ending October 28, 2021 compared to the week of October 21, 2021. Meanwhile, the JP Morgan EMBI slightly increased from 913.94 to 921.64 during the period.

In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds increased by 21 and 134 basis points (bps), respectively, to end the week of October 28 at 65.36% and 49.85%.

In the US, the yields on 5 year treasuries and 10 year US treasuries recorded a slight downtick from the week ending October 21, 2021 from 1.23% to 1.18% and 1.68% to 1.57% by the week ending October 28, respectively.

This week in the U.S. market, the economy has regressed intensely as prices for food, energy and consumer goods are increasing drastically pushing inflation higher. In fact, the Fed has declared that industrial production decreased by 1.3% in September, the largest drop since February. Meanwhile, real GDP added only 4.9% from second quarter to the third quarter in 2021, as supply chain malfunctions continue to curb the economic recovery and growth.

Lastly, central banks all over the world have considered possible tapering policy normalization and investors expect a potential increase for rates. Adding to supply disruptions, the pandemic and a huge jump in energy prices are causing higher inflation pressures. However, the outlook of the economic growth remains strong and enough to absorb the rates hikes.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a jump from 6,392 bps and 4,683 bps to 6,418 bps and 4,828 respectively.

5Y Credit Default Swaps (CDS)
Lebanon . .
 Source: Bloomberg


Weekly Change of Lebanese Eurobonds Prices 

Maturity Coupon in %28/10/202121/10/2021Change 28/10/202121/10/2021Change bps

Source: BLOMInvest Bank

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