Watching US Bonds Market is Key for Investors’ Next Move

The Lebanese Eurobonds market continued to signal a better performance for the second consecutive week but hovering comparatively at all-time low levels. Pressures concerning forming the awaited Government are weighing on the Lebanese economy despite a promising summer season. However, it is even greater than expected especially that no agreement has been reached yet regarding the maritime borders of Lebanon. In fact, the financial situation of the country requires fast action to be taken without any conditions or obstacles so that Lebanon would be able to reach an IMF deal in the upcoming period and undertake serious discussions with the Bondholders.

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 0.30% weekly to stand at 6.75 points by the week ending July 14, 2022 compared to the week of July 07, 2022. As for the JP Morgan EMBI, it slightly decreased by 2.18% to stand at 732.37 by the end the week of July 14, 2022, compared to 748.70 at the end of the week of July 07, 2022.

Furthermore, the yield on the 5 years (5Y) Lebanese Eurobonds registered a contraction of 45 basis points (bps) to stand at 121.70% whereas the 10 years (10Y) Lebanese Eurobonds followed an uptick of 5 bps to end the week of July 14, 2022 at 105.25%.

This week in the U.S, the Treasury yield curve inversion tapered as yields hitting their sharpest level since 20 years. Shorter yields are often more sensitive to changes in monetary policy. As a result, the yields on the 5Y U.S Treasuries registered a slight uptick by 1 bps while the yields on the 10Y U.S Treasuries recorded a decrease by 5 bps ending the week at 3.06% and 2.96%, respectively.

Despite fast recovery from the pandemic in the US economy, higher demand as well as the war in Ukraine have stressed supply chains and pushed up inflation sharply. As such, US CPI report showed inflation soaring higher than it has since November 1981, at 9.1% with a month over month increase of 1.3%, the biggest jump since 2005. Moreover, IMF annual review for the US economy showed that the US economic growth forecast has again been revised down to 2.3% and 1% for 2022 and 2023, respectively. We believe that the Fed would continue to tighten its monetary policy to limit inflation close to its target, and as such a 100 bps of interest rate hike is awaited to be discussed in the next FOMC meeting.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a drop from 11,910 bps to 11,864 bps while the 10Y spread registered an increase from 10,219 bps to 10,229 bps by the week ending July 15, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank