BBI in low range, amid disagreement over the restructuring reform plan

26/05/202219/05/2022 ChangeYear to Date
BLOM Bond Index (BBI)9.7410.22-4.70%-11.13%
Weighted Yield          103.46%99.63%3.84%17.81%
Weighted Spread           10,203              9,8163.94%16.26%

26/05/202219/05/2022 Change
JP Morgan EMBI788.79766.072.97%
5Y LEB93.50%89.40%410
10Y LEB73.70%71.10%260
5Y US2.70%2.84%-14
10Y US2.75%2.84%-9
5Y SPREAD                      9,080                        8,656424
10Y SPREAD                      7,095                        6,826269

This week in Lebanon, the Eurobonds market registered remarkable drops and traded on record low prices below ten cents on the dollar, mainly due to the uncertain and unpredictable political path. Bonds’ holders are today anticipating a longer period for their debt restructuring deal as the parliamentary election added more doubt about the country’s ability to impose reforms needed to unleash the crucial international aid. In fact, The Association of Banks in Lebanon (ABL) rejected for the second time on Tuesday, May 24 a financial recovery plan, approved by the Mikati government, aiming to restructure the financial sector specifically the banking sector. On the same day, the local currency dropped to a record low of 34,000 Lebanese pounds against the US dollar, meaning it has lost 95 per cent of its value compared to pre-crisis levels. Consequently, these factors would likely extend the shape of the economic recovery and deal with the Eurobond holders.

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 4.7% YTD to stand at 9.74 points by the week ending May 26, 2022 compared to the week of May 19, 2022. As for the JP Morgan EMBI, it grew by 2.97% to stand at 788.79 by the end the week of May 26, 2022, compared to 766.07 at the end of the week of May 19, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered a remarkable jump of 410 and 260 basis points (bps), respectively, to end the week of May 26, 2022 at 93.5% and 73.7%.

In the US, the yields on 5-year and 10 year recorded slight drops by 14 and 9 basis points to settle at 2.7% and 2.75% respectively by the week ending May 26, 2022. In fact, investors are seeking to invest more and more in US treasury bonds as they are considered safe and risk-free assets, especially, given the recent decline in US stock market.

The US economy is still facing increasing inflation, causing severe hardships for lower-income households. In addition, supply chains are experiencing high disruptions due to many factors, such as an unexpected increase in demand, a shortage of port workers due to the Covid-19 pandemic, and a weakened transportation infrastructure for inland movements, all combined to cause US companies to fail to meet production, delivery and distribution targets. To help address the issue, US president Joe Biden issued a call to action to encourage every link in the goods movement chain to move towards a 24/7 pace to increase the volume and speed at which products flow through the system. As such, with the new plan to improve supply chains, the US bond market has improved, thus decreasing the US yields on five and ten years.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a growth from 8,656 and 6,826 to 9,080 bps and 7,095 bps, respectively.

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

Weekly Change of Lebanese Eurobonds Prices 

Maturity Coupon in %26/05/202219/05/2022Change 26/05/202219/05/2022Change bps

Source: BLOMInvest Bank

Leave a Reply

Your email address will not be published. Required fields are marked *