This week, IMF delegation team held meetings with the Lebanese Government from Feb 28 till March 01 and they outlined the needed steps for a final agreement. As such, legislations about amending the banking secrecy law and measures to enhance tax collection were discussed and to be followed up in next meeting.
On a different note, the war in Ukraine is turning Lebanon’s food crisis into an existential threat to the economy as these conflicts could lead to a major food supply disruptions as well as it could push up food prices in a country already is suffering from a hyperinflation. However, Lebanon’s State of absence haven’t imposed controls and restrictions on food exportations to secure its food inventory whereas several neighboring countries have closed down food and grains exportations and put in place strict plans for their food security.
Amid 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), dropped by 1.62% to stand at 12.11 points by the week ending March 03, 2022 compared to the week of February 24, 2022.
In addition, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds added 208 and 125 basis points (bps), respectively, to end the week of March 03, 2022 at 78.10% and 62.55%.
In the US, the yields on 5-year treasuries and 10-year US treasuries, recorded a slight decrease from 1.85% and 1.96% to 1.74% and 1.86% by the week ending March 03, 2022. The lower yield is consistent with the safe haven investments in U.S Treasuries.
This week in the U.S, some positivity was marked regardless of the impact of Russia’s war on Ukraine and predictions of forthcoming Fed interest rate hikes. Jobless claims dropped to two-month low of 215,000, close to pre-pandemic levels.
This figure represents a strong labor market that paved the way for the Fed to stick to its tightening monetary policy. As such, Congressional testimony held this week in which Chairman Powell assured to increase interest rates by the target range of 25 basis points at the March FOMC meeting.
Furthermore, he stated that they are working on developing working plans to making adjustments to monetary policy over the course of the upcoming months and they are flexible as plans meet the real world. They are fully committed to laying out their principles and implementing policies carefully and nimbly. Decisions would be based on incoming data and the evolving outlook as the effects of latest events are highly uncertain so far.
In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an uptick from 7,418 bps and 5,934 to 7,636 bps and 6,069 bps, respectively.
|5Y Credit Default Swaps (CDS)|
|Lebanon|| .|| .|
| Source: Bloomberg|
Weekly Change of Lebanese Eurobonds Prices
|Maturity ||Coupon in %||03/03/2022||24/02/2022||Change ||03/03/2022||24/02/2022||Change bps|
Source: BLOMInvest Bank