The Bond market in Lebanon revealed further signs of contraction this week and reached below 7 cents levels. In fact, this week, a meeting was held between the prime Minister-designate Najib Mikati, President Michel Aoun and parliament speaker Nabih Berri, to discuss the government formation. Unfortunately, the discussions have hit a dead end; thus, with no clear signs of debt restructuring or government formation, the political and economic outlooks remain uncertain.

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 5.71% weekly to stand at 6.82 points by the week ending September 8, 2022 compared to the week of September 1, 2022. As for the JP Morgan EMBI, it slightly increased by 0.48% to stand at 758.13 by the end the week of September 8, 2022, compared to 754.51 at the end of the week of September 1, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered an increase of 218 basis points (bps) and 1,265 basis points (bps) to stand at 123.1% and 108.7%, respectively, by the week ending September 8, 2022.

In the U.S market this week, the yields on the 5Y T-bills remained stable at 3.39%, while the 10Y T-bills registered a slight uptick of 3 bps to reach 3.29% by the end of week of September 8, 2022. Therefore, the yield on 10Y T-bills is lower by 10 bps than the yield on 5Y T-bills, while the yields on 0.5Y and 1Y T-bills reached respectively 3.44% and 3.6%, indicating a humped yield curve.

Federal Reserve Chair Jerome Powell assured that there will be future rates hike by the Fed in order to continue its fight against inflation. Therefore, the fed’s next meeting will be held on September 20 and 21 and investors are expecting another 0.75 percentage point increase this month. Furthermore, according to the U.S. Bureau of Labor Statistics, the Consumer Price Index increased 8.5% in July 2022, a smaller figure than the 9.1-percent increase for the period ending June 2022.

 On a different note, US jobless claims fell by 6000 reaching their lowest level since May, to stand at 222,000 according to US Labor department data, an indication for strong labor market and reluctance to fire workers. That’s in line with recent macroeconomic data that is limiting near-term recession risks. The economy is slowing but for now, economic activity is still expanding and demand for labor remains strong.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 11,753 bps and 9,279 bps to 11,971 bps and 10,541 bps respectively by the week ending September 8, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank