Second Decline for America’s GDP as Economic Slowdown is Looming

The Lebanese Eurobonds market signaled an increase this week as the market rebounded after previous drops. It is seen as the Eurobonds market is hovering around the resilient levels of 6.60 cents despite no major developments recorded. On the political side, Lebanese parliament adopted amendments to banking secrecy law that allows secrecy to be lifted only in the case of probes into crimes involving public money and terrorism financing but it seems that these changes are not enough to meet IMF conditions as it does not allow for retroactivity, or effective combating of corruption or money laundering.

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 of 1.20% weekly to stand at 6.72 points by the week ending July 28, 2022 compared to the week of July 21, 2022. As for the JP Morgan EMBI, it slightly increased by 2.33% to stand at 764.74 by the end the week of July 28, 2022, compared to 747.31 at the end of the week of July 21, 2022.

Furthermore, the yield on the 5 years (5Y) and the 10 years (10Y) Lebanese Eurobonds registered a expansion of 39 and 23 basis points (bps) to stand at 122.80% and 105.58%, respectively, by the week ending July 28, 2022.

In the U.S market this week, Treasury yields have dropped significantly driven by investors’ sentiments despite tightening policy of the Fed. In details, 10Y T-bills note was down remarkably to 2.68% same as the yield on the 5Y T-bills note that reached 2.69%. Meanwhile, the yields on the 1Y, 2Y and 3Y Treasury bonds fell to stand at 2.93%, 2.85%, and 2.81%, respectively by the end of this week. Hence, shorter yields remained relatively higher than longer yields pushing the yield curve to be more steepened and signaling that the economy will weaken.

The yields curve move followed the Fed’s decision regarding a 75 bps rate hike to a range of 2.25%-2.50%, in addition to the Fed Chairman Powell’ comments that appeared to be doubtful regarding less aggressive tightening policy to be adopted in the upcoming period so as to tackle inflation.

Furthermore, growing concerns about a possible economic slowdown are taking place as the released data showed consecutive decline in the US GDP with registered 0.9% drops on a yearly basis for the second quarter after a 1.6% decline in the first quarter of 2022. Moreover, Personal consumption rose at a 1% pace recording a deceleration from the prior period.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 11,941 bps and 10,244 bps to 12,011 bps and 10,290 bps by the week ending July 28, 2022.

5Y Credit Default Swaps (CDS)
28/07/202221/07/2022
Lebanon . .
KSA7072
Dubai127140
Brazil281296
Turkey855843
 Source: Bloomberg
 PricesWeeklyYieldsWeekly
Maturity Coupon in %28/07/202221/07/2022Change 28/07/202221/07/2022Change bps
22/04/20246.656.506.500.00%284.97%281.29%369
04/11/20246.256.506.500.02%209.08%207.38%170
03/12/20247.006.506.500.00%208.29%206.99%129
26/02/20256.206.506.342.46%185.17%185.94%-77
12/06/20256.256.666.640.29%164.90%164.44%45
28/11/20266.606.506.322.80%125.27%127.38%-211
23/03/20276.856.506.500.00%122.83%122.43%39
29/11/20276.756.506.352.36%114.34%116.31%-196
03/11/20286.656.506.362.22%106.69%108.50%-181
26/02/20306.656.506.401.55%103.54%104.66%-112
22/04/20317.006.316.37-0.96%108.59%107.63%96
23/03/20327.006.496.50-0.09%105.59%105.35%24
02/11/20357.056.496.352.35%105.57%107.98%-241
23/03/20377.256.356.350.00%111.13%110.96%17

 

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank

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