Bonds Down as No Reforms Have Been Put in Place

This week in Lebanon, information minister resigned in the hope to ease the Lebanon-GCC diplomatic crisis. This resignation came along with French president’s visit to the Gulf countries that has thoughtful efforts to help Lebanon during its current crises. Moreover, Lebanon’s IMF talks have not yet seen the light amid prerequisites conditions that could be found to be harsh by the current Lebanese leaders. The success of the Government depends on the launch of serious structural, fiscal and financial reforms and surely a full package with the IMF and the unlocking of international funds for Lebanon.

In more details, 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), plunged further by 3.64% to stand at 11.64 points by the week ending December 02, 2021 compared to the week of November 25, 2021. Meanwhile, the JP Morgan EMBI slightly increased from 908.83 to 913.20 during the period.

In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds jumped by 135 and 353 basis points (bps), respectively, to end the week of December 02 at 81.25% and 64.55%.

In the US, the yields on 5 year treasuries and 10 year US treasuries recorded a slight downtick from the week ending November 25, 2021 from 1.34% to 1.21% and 1.64% to 1.44% by the week ending December 02, respectively.

This week in the U.S., Chairman Jerome Powell claimed that the Fed would discuss speeding up bond buying taper in its next meeting. As such, reducing the pace of bonds purchases would move quickly than the $15 B month schedule stated earlier.  Moreover, jobs data added 210,000 in December, less than 545,000 expected while unemployment rate in the U.S fell to 4.2%. Furthermore, yields should be driven by an expected interest rate hikes by the Central Bank as the inflation pressure would persist in the upcoming year, though currently yields are lower because it is a “wait and see” period with the emergence of the new Corona variant.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a jump from 7,856 bps and 5,938 bps to 8,004 bps and 6,311 bps, respectively.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank