|03/11/2022||27/10/2022|| Change||Year to Date|
|BLOM Bond Index (BBI)||6.19||6.25||-0.96%||-43.52%|
|Weighted Yield ||158.83%||156.89%||1.24%||80.86%|
|JP Morgan EMBI||714.38||716.92||-0.35%|
|5Y SPREAD|| 13,114|| 13,151||-37|
|10Y SPREAD|| 11,106|| 11,002||104|
The Eurobonds performance recorded further downtrend for the third consecutive week. Indeed, failure to elect a new head of State following the end of term of President Michel Aoun continues to add bearish pressure on the Lebanese economy. In fact, ongoing political instability and a lack of commitment to reforms are likely to prevent any recovery attempt. Consequently, an agreement with the IMF will be further delayed, thus hindering the completion of the required reforms necessary to complete the IMF deal.
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 0.96% weekly and remarkable drop YTD of 43.52% to stand at 6.19 points by the week ending November 3, 2022 compared to the week of October 27, 2022. As for the JP Morgan EMBI, it slightly decreased by 0.35% to stand at 714.38 by the end the week of November 3, 2022, compared to 716.92 at the end of the week of October 27, 2022.
Furthermore, the yield on the 5 years (5Y) Lebanese Eurobonds registered a decrease by 10 basis points (bps) to stand at 135.5%, whereas the yield on the 10 years (10Y) Lebanese Eurobonds registered an increase by 122 basis points (bps) to stand at 115.2% by the week ending November 3, 2022 compared to the week of October 27, 2022.
In the U.S market this week, one-year and two-year yields reached the highest values of 4.78 and 4.71 respectively. In fact, one-year yield exceeds 10-year by 64 basis points. The US treasury yield curve reached new extremes of inversion on Thursday, November 3rd, as the Federal Reserve continues to aggressively tighten its monetary policy.
As a matter of fact, the Federal Reserve raised its interest rate by another 0.75 percentage point on Wednesday, November 2nd. The central bank signaled that while its tightening campaign isn’t over, it might be getting closer to slowing the pace of rate hikes. It is the central bank’s sixth increase of 2022 and fourth straight 0.75 percentage-point bump, bringing the benchmark rate to 4%. That is as high as rates have been in nearly 15 years.
Furthermore, the Fed’s latest rate hike comes just days before the November 8 midterm US congressional elections and amid rising criticism from Democrats who are worried that higher borrowing costs will push up unemployment. Powell expressed his conviction that low inflation was better in the long run for all Americans, even if the short-term cost was high, thereby showing that the Federal Reserve is on an independence streak.
US Jobless claims decreased by 1000 over the week to reach 217k, reflecting that employers continue to resist letting workers go. However, the outlook is turning more negative, as companies anticipate a downturn, thus we estimate a modest rise in layoffs over the near term, consistent with gradual cooling of a still-tight labor market.
In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 13,151 bps and 11,002 bps to 13,114 bps and 11,106 bps respectively by the week ending November 3rd, 2022.
|5Y Credit Default Swaps (CDS)|
|Lebanon|| .|| .|
| Source: Bloomberg|
|Maturity ||Coupon in %||03/11/2022||27/10/2022||Change ||03/11/2022||27/10/2022||Change bps|
Weekly Change of Lebanese Eurobonds Prices
Source: BLOMInvest Bank