The Eurobonds performance showed signs of contraction this week amid continuous political deadlock over the presidential election. The Central Bank governor Riad Salamé declared that the new official exchange rate of LBP 15,000 per USD will go into effect on February 1, 2023 as part of a measure to unify the multiple exchange rates on the black market. Similarly, the Ministry of Finance will adopt a new exchange rate of LBP 15,000 per dollar in December 2022, instead of LBP 1507.5 per USD for customs tariffs, thus it is expected that Lebanon will witness a new wave of hyperinflation soon.

In this context, 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 remarkable decrease of 1.01% weekly along with a substantial fall YTD of 44.09% to stand at 6.13 points by the week ending December 1, 2022. As for the JP Morgan EMBI, it rose by 2.52% to stand at 774.59 by the end the week of December 1, 2022, compared to 755.58 by the end of the week of November 24, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered respectively a rise by 205 and 90 basis points (bps) to stand at 137% and 115.2%, by the week ending December 1, 2022 compared to the week of November 24, 2022.

In the U.S market, the yield curve shifted lower this week amid expectations that the Federal Reserves would slow interest rate hikes. In fact, one, five and ten years yields fell respectively by 9, 20 and 18 basis points (bps) on December 1, 2022, compared to the previous week of November 24, 2022. Nevertheless, six months and one year yields remain the highest at 4.65 and 4.66 bps respectively, thereby still signaling that a recession is on the horizon.

In more details, Fed officials have been raising interest rates quickly this year in a bid to bring inflation down from the highest levels in four decades. They are widely expected to lift the central bank’s benchmark rate by a 50 basis points, to reach 4.5%, in their next meeting on December 13 and 14. That would mark a smaller increase than the three-quarter point hikes they’ve undertaken at each of their last four policy meetings.

US jobless Claims decreased to 225k from 241k prior; however, the drop in initial jobless claims is more a product of notoriously volatile data around holidays such as Thanksgiving than an indication of job-market vigor. Furthermore, Economists have been watching continuing claims more closely in recent weeks as they serve as an indicator of how hard it is for people to find work after losing their job. They’ve also been known to hint at upcoming recessions. Continuing claims, which include people who have already received unemployment benefits for a week or more, rose by 57,000 to 1.6 million in the week ending Nov. 19, the biggest jump in a year.

In addition, recurring applications for US unemployment benefits rose to the highest since February, suggesting that Americans who are losing their job are having more trouble finding a new one in a labor market that’s gradually cooling. However, while there’s been a wave of layoffs at high-profile technology and banking companies, it’s still largely contained to a few industries. Economists at Bloomberg expect layoffs to broaden in months ahead, ultimately pushing the unemployment rate to 4.5% by the end of 2023.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an uptick from 13,107 and 11,059 bps to 13,332 and 11,167 bps respectively by the week ending December 1, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank