The Bond market in Lebanon revealed further signs of contraction this week below 7 cents levels. In fact, following the events that led to holding banks hostages by angry depositors, banks went on a strike for a period of one week, and upon their re-opening on the 26th of September, they increased security majors and imposed that all bank transactions bet set upon appointment or through ATMs. Furthermore, the IMF visit to Beirut from the 19th till 21st of September showed concerns regarding the delays related to the implementation of the prior actions agreed under the Staff level agreement. As a result, the Lebanese government approved 2022 budget as it was one of the pre-conditions for the IMF agreement, and set the exchange rate for customs to be 15,000 LBP per USD.

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 4.84% weekly to stand at 6.37 points by the week ending September 29, 2022 compared to the week of September 22, 2022. As for the JP Morgan EMBI, it decreased substantially by 3.77% to stand at 714.12 by the end the week of September 29, 2022, compared to 742.07 at the end of the week of September 22, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered respectively an increase of 460 and 480 basis points (bps) to stand at 132.3% and 113.75% by the week ending September 29, 2022 compared to the week of September 22, 2022.

In the U.S market this week, the yields on the 5Y and 10Y T-bills increased respectively by 7 bps and 6 bps to stand at 3.98% and 3.76% in the week ending September 29, 2022. In fact, the yields on two and three years reached respectively the highest percentages of 4.16% and 4.19%, thus indicating an inverted yield curve and showing more signs of an upcoming recession.

The federal reserve has raised another 75 basis points in their meeting on September 20 and 21 bringing the target for the benchmark federal funds to 3.25%. In fact, policy makers are committed to keep on raising interest rates in the next two meetings in November and December in the objective to restore price stability.

On a different note, US jobless claims fell by 16,000 reaching their lowest level since April, to stand at 193,000 according to US Labor department data, an indication for strong labor market and reluctance to fire workers. Nevertheless, the job market is expected to weaken as the federal reserve continues to aggressively raise interest rates. In fact, the impact from the hikes, which led to soaring borrowing costs for houses and cars, will likely affect the economy over the next few months and lead to higher unemployment. Furthermore, the rise of interest rates will affect unemployment starting mid-2023 as monetary policies operate with a lag.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 12,379 bps and 10,525 bps to 12,832 bps and 10,999 bps respectively by the week ending September 29, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank