Fed Validated Market Expectations by Signaling Interest Rate Hikes in 2022 to Battle Inflation

This week, Lebanon’s Central Bank will be offering dollars in light of the latest shortfall of the Lebanese pound against the green currency. By adopting this policy, BDL is going to inject hard currency into the market that would do little to steady and balance the fluctuating national currency. Moreover, Lebanese Foreign Ministry claimed that Lebanon won’t be the place for abuse or infringement on brotherly Bahrain and all Arab brothers as a complaint took place by Bahrain’s Ministry of Foreign Affairs over a press conference held in Beirut for elements classified as sponsoring terrorism and promoting abusive allegations against Bahrain. The ministry validated that Lebanon is fully committed to the Charter of the Arab League in terms of non-interference in the internal affairs of the Arab Brothers and PM Mikati stated that this behavior does not reflect the global opinion of the Lebanese and asked to conduct immediate investigations regarding this incident.

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), dropped by 1.20% to stand at 11.49 points by the week ending December 16, 2021 compared to the week of December 09, 2021. Meanwhile, the JP Morgan EMBI slightly decreased from 920.06 to 918.58 during the period.

In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds jumped by 40 and 36 basis points (bps), respectively, to end the week of December 16 at 82.30% and 64.76%.

In the US, the yields on 5 year treasuries and 10 year US treasuries recorded a slight downtick from the week ending December 09, 2021 from 1.26% to 1.19% and 1.49% to 1.44% by the week ending December 16, respectively.

As for the US market this week, the Federal Open Market Committee FOMC reviewed the economic and financial conditions and assessed price stability and employment and output in yesterday’s meeting. In details, the Fed declared doubling the pace of tapering as the pandemic-era stimulus program is set to end completely by March 2022. Moreover, Fed had drawn more attention to the inflation claiming that it would be persistent. In turn, with the inflation pressuring the fast recovery economy, policymakers have showed intentions to raise interest rate in the next years. In addition, President Biden is probably to make nominations to the Board of Governors in the upcoming days, and replacements for the Dallas and Boston regional Fed presidents are also likely to be claimed shortly.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a jump from 8,064 bps and 6,291 to 8,111 bps and 6,332 bps, respectively.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank