U.S. Treasury in Disturbed Mode Before Jackson Hole Conference

The Bond market in Lebanon gradually decreased all over the week to finish off on lower levels signaling a persistent struggle for the Lebanese Eurobonds performance. Higher inflation and uncertain outlook rule over the summer season despite some positive developments in the private sector. As such this week, S&P ratings affirmed the SD/SD (selective default) foreign currency ratings and our CC/C local currency ratings on Lebanon with a negative outlook on the long term local currency rating to remain. In the same token, Fitch ratings also affirmed Lebanon’s long term foreign currency Issuer Default rating (IDR) at Restricted Default and the country’s long term local currency IDR at CC. The rating of these agencies indicated that Lebanon’s outlook would remain uncertain following doubtful expectation concerning the Government’s implementation of the preconditions requested by the IMF. Nevertheless, the next presidential election and persisting political deadlock and State dysfunction impose an unknown timeline for recovery.

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 a significant drop of 2.15% weekly to stand at 7.73 points by the week ending August 25, 2022 compared to the week of August 18, 2022. As for the JP Morgan EMBI, it slightly decreased by 0.64% to stand at 772.64 by the end the week of August 25, 2022, compared to 777.60 at the end of the week of August 18, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered an increase of 166 basis points (bps) and 345 basis points (bps) to stand at 113.80% and 93.40%, respectively, by the week ending August 25, 2022.

In the U.S market this week, Treasury yields recorded fluctuations all over the trading’ sessions to end up the week on higher levels. The yields on the 5Y T-bills added 12 basis points to stand at 3.15% by the end of week of August 25, while the 10Y T-bills registered an uptick of 15 bps to reach 3.03%. Meanwhile, the yield on the shorter terms 1Y, 2Y, and 3Y Treasury note added 9 bps, 13 bps, and 14 bps, respectively to stand at 3.33%, 3.35%, and 3.37% and higher than the longer yields.

The U.S Treasury market dropped by the end of the week to slightly lower on Friday after reaching multi-week upticks the previous session. The downfall was driven by uncertain investors’ sentiments regarding what the Fed would state during the annual global central bank conference on Friday in Jackson Hole. Despite Fed’s decision to control inflation and keep it to its 2% target, Bondholders are concerned that the Central Bank might declare a slowing pace of its tightening monetary policy. In turn, the market looked divided on whether the Fed would hike rates by 50 bps or 75 bps in September.

On a different note, US jobless claims dropped for the second week by 2,000 to stand at 243,000 according to US Labor department data, an indication for strong labor market. Hence the fall in jobless claims showed that companies are holding on to employees regardless of growing economic uncertainty.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 10,911 bps and 8,707 bps to 11,065 bps and 9,037 bps by the week ending August 25, 2022.

5Y Credit Default Swaps (CDS)
Lebanon . .
 Source: Bloomberg
Maturity Coupon in %25/08/202218/08/2022Change 25/08/202218/08/2022Change bps

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank

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