U.S Favors a Quarter-Point Interest Rate Move

17/03/202210/03/2022 ChangeYear to Date
BLOM Bond Index (BBI)11.9011.880.20%8.61%
Weighted Yield          86.32%86.05%0.31%-1.71%
Weighted Spread             8,549              8,5270.26%-2.59%

 17/03/202210/03/2022 Change
JP Morgan EMBI836.03824.841.36%
5Y LEB78.00%78.15%-15
10Y LEB61.10%61.15%-5
5Y US2.17%1.92%25
10Y US2.20%1.98%22
5Y SPREAD                      7,583                        7,623-40
10Y SPREAD                      5,890                        5,917-27

This week witnessed polychromatic events, some of which are positive and others are negative. After 2 years of economic collapse, it’s time for new elections, and candidates submitted their papers ahead of the candidacy deadline on march 16th, hoping to hold elections on their set date on May 15, 2022. This is a delicate stage for the country as it makes room for the new generation to renew the country politically and economically.

Moreover, Lebanese judge froze the assets of five of Lebanon’s largest banks in addition to sealing the central vaults of Fransabank on Thursday, limiting the bank’s ability to resume its normal cash operations. Worth noting that after Lebanese judge Ghada Aoun ordered the arrest of Raja Salameh on Thursday, she declared to ‘The National’ that she will press charges against the central bank governor Riad Salameh on Monday. As such, these developments mostly question whether Lebanon’s elections will go ahead in May 2022.

 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), rose by 0.20% to stand at 11.90 points by the week ending March 17, 2022 compared to the week of March 10, 2022.

In addition, the yield on the 5 years (5Y) Lebanese Eurobonds dropped by 15 basis points (bps) to stand at 78.00%, whereas the yield on the 10 years (10Y) Lebanese Eurobonds dropped by 5 basis points (bps) to reach 61.10% by the week ending March 17, 2022.

In the US, the yields on 5-year treasuries and 10-year US treasuries, recorded a notable increase from 1.92% and 1.98% to 2.17% and 2.20% respectively by the week ending March 17, 2022. The higher yield is consistent with higher inflation expectation.

Wednesday will mark the beginning of the third week of Russia’s invasion into Ukraine, however, Russia is still unable to advance further into the city following the defense by Ukrainian forces. The U.S. continues to supply weapons and other forms of security assistance to Ukraine, including within the last 24 hours, the official said.

Furthermore, the jump of oil and other commodities prices in the U.S since the Russian’s invasion of Ukraine is adding to the price pressure, as such Powell favors a quarter-point move in interest rate next week and is open to a larger increase. Price pressures added further uncertainty by threatening to both slow economic growth and add to inflation.

At the last update of the Federal Open Market Committee (FOCM) meeting, officials projected inflation would run at 2.7%, a massive understatement of the current conditions as well as the start of reductions in bond holdings, a program sometimes conversely called quantitative tightening. As a result, the Fed is expected to allow about $100 billion in bond proceeds to roll off each month, rather than being reinvested in new bonds, Wall Street estimates.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downtick from 7,623 bps and 5,917 to 7,583 bps and 5,890 bps, respectively.

5Y Credit Default Swaps (CDS)
Lebanon . .
 Source: Bloomberg

Weekly Change of Lebanese Eurobonds Prices 

Maturity Coupon in %17/3/202210/03/2022Change 17/3/202210/03/2022Change bps


Source: BLOMInvest Bank

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