The Bond market in Lebanon revealed signs of contraction this week but remained above its resilient 7 cents levels. In fact, the market performance won’t be adjusted to levels before the crisis until a recovery plan would put on table and deal with bondholders. Moreover this week, Lebanon ranked first among top countries with the highest food price inflation and real food price inflation. According to the Food Security report of the World Bank, Lebanon nominal food price inflation reached 332% by April 2022 while the real food price inflation stood at 122% YOY by April 2022, both the highest worldwide. In this context, Lebanon has accessed a concessional loan of $150 M from the World Bank to secure wheat imports for this year.
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), recorded an insignificant downtick of 0.13% weekly to stand at 7.90 points by the week ending August 18, 2022 compared to the week of August 11, 2022. As for the JP Morgan EMBI, it slightly decreased by 1.09% to stand at 777.60 by the end the week of August 18, 2022, compared to 786.13 at the end of the week of August 11, 2022.
Furthermore, the yield on the 5 years (5Y) Lebanese Eurobonds registered an increase of 24 basis points (bps) to stand at 112.14% while and the 10 years (10Y) Lebanese Eurobonds recorded a drop of 95 bps to reach 89.95%, by the week ending August 18, 2022.
In the U.S market this week, Treasury yields had an agitated week and recorded fluctuations all over the trading’ sessions to end up the week on higher levels. The yields on the 5Y T-bills added 5 basis points to stand at 3.03% by the end of week of August 18, while the 10Y T-bills registered a minor uptick of 1 bps to reach 2.88%. Meanwhile, the yield on the short term 2Y Treasury note traded about 3 bps lower at 3.22% but remained higher than longer yields.
The market varied following Fed’s meeting minutes release during this week that assured future rates hike by the Fed until inflation cooled substantially, despite that the Central Bank would tapper its tightening policy in the coming period. Hence, the Fed’s main concern today is keeping a close eye on the employment data, and more importantly, on price stability to navigate the environment of both high inflation and potential economic recession. On the economic front, initial jobless claims showed drops of 2,000 claims to reach 250,000 claims by the week ending August 13, 202.
In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 10,892 bps to 10,911 bps while the 10Y spread between the yield on Lebanese Eurobonds and their US comparable regressed by 96 bps from 8,803 bps to 8,707 bps by the week ending August 18, 2022.
|5Y Credit Default Swaps (CDS)|
|Lebanon|| .|| .|
| Source: Bloomberg|
|Maturity ||Coupon in %||18/08/2022||11/08/2022||Change ||18/08/2022||11/08/2022||Change bps|
Weekly Change of Lebanese Eurobonds Prices
Source: BLOMInvest Bank