US Treasury Yields Rise Due to Expected Rates Spark

Lebanon ends 2021 with no major changes concerning the ongoing socio-economic crises.  Moving into 2022, a draft with the IMF would be finalized before the end of February as an IMF delegation will visit Lebanon to further discuss the agreement that has to be approved by the Government. In turn, possible growth may be registered once the ration card program would be implemented, remittances and election related spending would also increase the purchasing power as well as an IMF rescue plan could be beneficial for the country’s economy. However, Saudi-Lebanon ties are likely to be affected by the positions of some Lebanese leaders and would impose further pressures on the Lebanese economy.

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 1.92% to stand at 10.75 points by the week ending January 05, 2022 compared to the week of December 29, 2021. Interesting to note, the BBI ended the year with a decline of 24.19%, from 14.175 points at 30/12/2021 to 10.96 points at 29/12/2021. Meanwhile, the JP Morgan EMBI slightly decreased from 918.10 to 905.55 during the period.

In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds jumped by 7 and 105 basis points (bps), respectively, to end the week of January 05, 2022 at 85.05 % and 68.70%.

In the US, the yields on 5 year treasuries and 10 year US treasuries recorded an uptick from the week ending December 29, 2021 from 1.29% to 1.55% and 1.47% to 1.73% by the week ending January 05, respectively.

As for the US market this week, initial claim for unemployment benefits stabilized at an extremely low level by America’s history. In turn, global manufacturing production growth accelerates at the end of year 2021 as supply disruptions showed signs of easing and price pressure cools down. Moving to yields, 5Y and 10Y treasuries yields has recorded the highest level since end of January 2020 and mid-march 2021 due to Fed’s announcement of rising interest rates. Most investors today are very cautious about future interest rates, the US economy constraints and probably inflation.  Moreover, the world of Keynesian stimulus would come finally to an end this year with prices rising beyond authorities ‘control and pressuring the Treasuries yields in the US. In addition, as far as the external geopolitical issues, Us-China relations would get worse largely due to political changes made concerning Taiwan’s reunification with China.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a drop from 8,369 bps to 8,358 bps. Meanwhile the 10Y spread between the yield on Lebanese Eurobonds and their US comparable registered an uptick from 6,610 to 6,697 bps.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank