This week, Lebanon’s parliament has failed for the 10^th consecutive time to elect a new head of State, leaving the country with a political void in the middle of an unprecedented economic meltdown. Unfortunately, political divisions have prevented the creation of a new cabinet, thus preventing any agreement on a consensus presidential candidate. Consequently, the country will enter the New Year 2023 without a president, while prime minister-designate Najib Mikati acts as a caretaker government. As such, the BBI index remained this week at its lowest levels and investors are constantly concerned over political uncertainty and lack of any recovery plan.

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), remained constant over the week, however decreased substantially YTD by 43.80% to stand at 6.16 points by the week ending December 15, 2022. As for the JP Morgan EMBI, it rose by 0.56% to stand at 782.26 by the end the week of December 15, 2022, compared to 777.94 by the end of the week of December 8, 2022.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds recorded a slight rise of 9 basis points (bps) to stand at 136.3% by the week ending December 15, 2022 compared to the previous week. Meanwhile, the yield on the 10 years (10Y) Lebanese Eurobonds registered a remarkable drop of 88 bps to stand at 114.2%, by the week ending December 15, 2022 compared to the week of December 8, 2022.

In the U.S market, the yield curve shifted lower this week amid a slower pace interest hike of 0.5% by the Federal Reserve. In fact, the yield on six months decreased by one bps over the week to reach the highest figure of 4.7% and the yield on one year (1Y) dropped by six bps to stand at 4.65% by December 15, 2022. Meanwhile, the yield on five and seven years dropped by nine and seven bps respectively over the week to stand at 3.62% and 3.56% by December 15, 2022. Therefore, investors are still anticipating that a recession is on the horizon.

In more details, the Federal Reserve raised interest rates on Wednesday by 0.50%, bringing benchmark rates to 4.5%, the highest level since 2007. Furthermore, the Fed signaled plans to continue lifting rates in 2023. In fact, the efforts of the Federal Reserve to increase rates to cool the economy and bring down inflation are starting to show off as the US inflation dropped remarkably by 0.6% to stand at 7.1% by the end of November.

Applications for US unemployment benefits fell last week to the lowest since September, in another sign of resiliency in the labor market amid a weakening economy. According to Labor Department data, the Initial unemployment claims decreased by 20,000 to stand at 211,000 in the week ending December 10, 2022.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downtick from 13,250 and 11,160 bps to 13,268 and 11,076 respectively by the week ending December 15, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank