As Lebanon continues to face a presidential vacuum, the caretaker Prime Minister Najib Mikati announced that the economy has recorded a growth of 2% this year.   Mikati credited the growth to several economic indicators, most notably, the improvement in the construction sector, the increase of visitors at Beirut-Rafic Hariri International Airport and the increase in remittances from workers abroad. According to Mikati, the optimistic political and economic scenario revolves around the election of a new president, the formation of a new government that adopts fundamental reforms, and the completion of a final agreement with the International Monetary Fund (IMF). Unfortunately, investors are constantly concerned over political uncertainty; thereby the BBI index decreased remarkably this week to stand at its lowest levels.

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), decreased remarkably by 1.01% over the week, alongside a substantial decrease YTD by 44.35% to stand at 6.1 points by the week ending December 22, 2022. As for the JP Morgan EMBI, it declined by 0.93% to stand at 774.97 by the end the week of December 22, 2022, compared to 782.26 by the end of the week of December 15, 2022.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds recorded respectively a rise of 140 and 150 basis points (bps) to stand at 137.7% and 115.7% by the week ending December 22, 2022, compared to the week of December 15, 2022.

In the U.S market, the yield on six months and one year decreased respectively by four and one bps over the week to reach the two highest figures of 4.66% and 4.64% by December 22, 2022. Meanwhile, the yield on ten years grew by 23 bps to reach the lowest figure of 3.67% by December 22, 2022. Therefore, investors are still anticipating that a recession is on the horizon. In fact, the Fed has been increasing rates aggressively to try to bring down inflation and has signaled further rises could be ahead. The central bank is expecting to hike its benchmark rate to 5.1% before it can get inflation under control.

Initial unemployment claims increased by 2,000 to stand at 216,000 in the week ending December 17, 2022, however remaining near a historically low level. On the other hand, continuing claims, the number of people already collecting jobless benefits, drifted lower, thus suggesting that the labor market continues to show strength by the end of the year.  The job market remains extremely tight, and while there have been some signs of cooling, the ongoing imbalance between supply and demand for labor continues to put upward pressure on wages. It’s also made many employers more reluctant to reduce headcount, given the challenges in attracting and retaining employees.

According to U.S. government data, the gross domestic product increased at an annual rate of 3.2% in the third quarter of 2022, higher than a previous estimate of 2.9%. Consumers are regaining some confidence as price pressures recede, and the labor market remains remarkably strong even as parts of the economy, such as the housing market, are struggling as the Fed tightens monetary policy.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a rise from 13,268 and 11,076 bps to 13,391 and 11,203 bps respectively by the week ending December 22, 2022.

 Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank