Elections seen as Trump Card for Eurobonds Holders!

This week in Lebanon, the Bonds market dropped significantly as chaos and turbulences intensified days before the awaited elections. In fact, two years after the first ever default on Eurobonds, Lebanese Deputy PM and Finance Minister held a conference on Wednesday to revise and update Eurobonds holders on the Service level Agreement recently conducted along with the IMF. The Government addressed the creditors about the economic situation and drew the path that would be adapted in order to revive the situation in the country and restructure the Eurobonds. Several steps are crucial in this case such as: restructuring of the financial sector, fiscal consolidation and debt sustainability, overall strengthening of the State framework as well as adaptation of an ultimate monetary and exchange rate regime. Hopefully, the elections will act as a trump card to bond holders and open the door for serious negotiations towards a reform program.

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), decreased by 3.50% YTD to stand at 11 points by the week ending May 12, 2022 compared to the week of May 06, 2022. As for the JP Morgan EMBI, it slightly retreated by 0.26% to stand at 775.04 by the end the week of May 12, 2022, compared to 777.08 at the end of the week of May 06, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds jumped by 295 and 520 basis points (bps), respectively, to end the week of May 12, 2022 at 85.95% and 67.20%.

In the US, the yields on 5-year and 10 year US treasuries retracted to some extent from 3.06% and 3.12% to 2.81% and 2.84%, respectively by the week ending May 12, 2022 thus cooling down the Bonds market. Important to mention that the 10Y rate broke above 3% during this week as the Fed declared its latest monetary policy move. The Fed rate hikes ignited concerns for the U.S economic outlook that it could get gloomier as the April published inflation data showed further increase by 0.6% on a monthly basis and 8.3% on a yearly basis. High inflation would push the market towards further challenging environment as well as might drive the Federal Reserve to further rate increase which is of course very crucial for the markets, jobs and overall economy in America.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a growth from 7,994 bps and 5,888 to 8,314 bps and 6,436 bps, respectively.

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

Weekly Change of Lebanese Eurobonds Prices 

Maturity Coupon in %12/05/202206/05/2022Change 12/05/202206/05/2022Change bps


Source: BLOMInvest Bank

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