Lebanon: Lack Of Political Will Pushed Bonds Market Down

The Bond market in Lebanon bounced back this week and dropped in light of risks of presidential vacuum and further delays to IMF agreement. In turn, the yields on the 5Y and 10Y Lebanese Eurobonds recorded a jump as a result of a deteriorated bond performance during the course of this week. It seems the positivity from the demarcation maritime borders between Lebanon and Israel was for a short term especially as repetitive failures to elect a new head of State has been registering during parliament meetings. All this impose further uncertainty and unknown timeline for the recovery plan as well as debt restructuring.

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 slight decrease of 0.47% weekly and remarkable drop YTD of 42.52% to stand at 6.30 points by the week ending October 20, 2022 compared to the week of October 13, 2022. As for the JP Morgan EMBI, it decreased by 0.79% to stand at 699.74 by the end the week of October 20, 2022, compared to 705.33 at the end of the week of October 13, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered respectively an increase of 180 and 130 basis points (bps) to stand at 134.30% and 113.40% by the week ending October 20, 2022 compared to the week of October 13, 2022.

In the U.S market this week, the 10Y T-bills surpassed levels of 2008 and jumped by 27 bps to stand at 4.24% in the week ending October 20, 2022, while the 5Y T-bills increased by 24 bps to reach a high of 4.45% by the same period. In addition, the yields on one and two years reached respectively the highest percentages of 4.66% and 4.62%, thus still indicating an inverted yield curve and showing further signs of an upcoming recession.

US benchmark bond prices have recorded the longest slump in decades as investors have been worried about the economic contraction due to the aggressive Federal Reserve’s tightening policy. On the Economic front, initial jobless claims fell to a three-week low to 214,000, below the economists’ expectation and indicating strong labor market despite concerns about a slowdown in economy. The unexpected drop in the US jobless claims and the aggressive Central Bank comments ensured market expectations of more tightening from the Federal Reserve.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 12,829 bps and 10,813 bps to 12,985 bps and 10,916 bps respectively by the week ending October 20, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank