The Lebanese Eurobonds market has been recording high volatility since the Government’s default and taking zero action to deal with the first time default till today that is making bond prices at a very steep discount to the face value and the bondholder. Furthermore, the war in Ukraine is another crisis burdening the Lebanese economy. With potential food supply disruptions, rising worldwide energy prices, and internal political stress, the situation in Lebanon is going from bad to worse. Lebanese are exposed to unbearable energy prices that are evaporating their paychecks and living standards.
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 1.90% to stand at 11.88 points by the week ending March 10, 2022 compared to the week of March 03, 2022.
In addition, the yield on the 5 years (5Y) Lebanese Eurobonds added 5 basis points (bps) to stand at 78.15%, whereas the yield on the 10 years (10Y) Lebanese Eurobonds dropped by 140 basis points (bps) to reach 61.15% by the week ending March 11, 2022.
In the US, the yields on 5-year treasuries and 10-year US treasuries, recorded a remarkable increase from 1.74% and 1.86% to 1.92% and 1.98% by the week ending March 11, 2022. The higher yield is consistent with higher inflation expectation.
This week in the U.S, the yield recorded a significant jump to reach high levels reflecting lower desire for investors to hold U.S treasury bills. In fact, one of the key correlations between bonds and bonds yields are real interest rates (inflation adjusted interest rates). Value of bonds ‘payments in real money terms would go down as investors are expecting higher inflation. In turn, bonds become less attractive due to drastically diminishing future return on investment.
On a different note, the U.S economy remains strong with a good determined labor market and a good financial shape for households; however, the Ukraine invasion is exacerbating inflation issue for the U.S and it could weaken its economy, and if persists, fear of stagflation might be a realistic possibility in the future term!
In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downtick from 7,636 bps and 6,069 to 7,623 bps and 5,917 bps, respectively.
| 5Y Credit Default Swaps (CDS) | ||
| 10/03/2022 | 03/03/2022 | |
| Lebanon | . | . |
| KSA | 52 | 55 |
| Dubai | 103 | 102 |
| Brazil | 221 | 221 |
| Turkey | 677 | 645 |
| Source: Bloomberg | ||
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 10/03/2022 | 03/03/2022 | Change | 10/03/2022 | 03/03/2022 | Change bps |
| 22/04/2024 | 6.65 | 11.56 | 11.62 | -0.53% | 163.24% | 160.99% | 225 |
| 04/11/2024 | 6.25 | 11.52 | 11.66 | -1.22% | 128.77% | 126.85% | 192 |
| 03/12/2024 | 7.00 | 11.37 | 11.42 | -0.45% | 129.55% | 128.36% | 119 |
| 26/02/2025 | 6.20 | 11.51 | 11.63 | -0.99% | 116.57% | 115.31% | 126 |
| 12/06/2025 | 6.25 | 11.76 | 11.80 | -0.34% | 105.30% | 104.56% | 74 |
| 28/11/2026 | 6.60 | 11.42 | 11.63 | -1.77% | 82.40% | 81.23% | 118 |
| 23/03/2027 | 6.85 | 11.37 | 11.64 | -2.31% | 81.13% | 79.59% | 155 |
| 29/11/2027 | 6.75 | 11.43 | 11.64 | -1.82% | 74.20% | 73.13% | 107 |
| 03/11/2028 | 6.65 | 11.52 | 11.65 | -1.12% | 68.01% | 67.34% | 67 |
| 26/02/2030 | 6.65 | 11.56 | 11.70 | -1.23% | 63.48% | 62.87% | 60 |
| 22/04/2031 | 7.00 | 11.28 | 11.50 | -1.89% | 64.62% | 63.51% | 111 |
| 23/03/2032 | 7.00 | 11.47 | 11.63 | -1.35% | 62.87% | 62.03% | 85 |
| 02/11/2035 | 7.05 | 11.51 | 11.85 | -2.89% | 61.06% | 59.34% | 172 |
| 23/03/2037 | 7.25 | 11.43 | 12.33 | -7.28% | 63.37% | 58.78% | 460 |
Source: BLOMInvest Bank