Bonds Market Bounced But Stood Relatively Low

This week, the Lebanese Eurobonds market rebounded but stood relatively in low levels as still no recovery plan in sight to deal with bondholders. In fact, Government began by reviewing the proposed amendments to the banking secrecy law as well as discussions with experts resumed concerning the capital control draft law. On a positive note, June PMI of Lebanon showed some signs of improvements as it reached 49.1, a 77-month high. The enlargement reflects a moderate pace of the private sector’s deterioration but possible political fragmentation remains a true threat for the Lebanese economy, especially that the presidential elections are near and PM Mikati should successfully form a government in order to take action against the collapse.

Amid these developments, 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), recorded an uptick 3.54% weekly to stand at 6.73 points by the week ending July 07, 2022 compared to the week of June 30, 2022. As for the JP Morgan EMBI, it slightly increased by 0.30% to stand at 748.70 by the end the week of July 07, 2022, compared to 746.44 at the end of the week of June 30, 2022.

Furthermore, the yield on the 5 years (5Y) Lebanese Eurobonds registered a contraction of 925 basis points (bps) to stand at 122.15% whereas the 10 years (10Y) Lebanese Eurobonds followed a significant upsurge of 410 bps to end the week of July 07, 2022 at 105.20%.

This week in the U.S, treasuries rose with two and 10 years yield curve remaining inverted for a fourth day. After the Fed’s interest rate increase, global market started by repositioning for any potential US recession, as such investors are keeping a close eye on the jobs figures. For instance, the national job openings rate decreased by 0.3% by the month of April 2022 while the unemployment rate in May stood at 3.4% down from 5.5% the same period last year. However, despite these figures investors are dumping risky assets and hiding their cash in the US T-bills due to recession fears. As stated by Bank of America, the second half of 2022 would most likely to be one of slowing growth and rising rates.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a drop from 12,839 bps to 11,910 bps while the 10Y spread registered an increase from 9,812 bps to 10,219 bps by the week ending July 07, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank