|26/01/2022||19/01/2023||Change||Year to Date|
|BLOM Bond Index (BBI)||6.67||6.30||5.89%||10.60%|
|JP Morgan EMBI||796.01||795.58||0.05%|
Three months into the presidential vacuum and Lebanon faces its worst economic crisis, complete currency devaluation and unprecedented increase in food and non-food prices. Citizens blocked roads in different cities in Lebanon to demand a solution to the currency devaluation that resulted in substantial decrease in purchasing power. Unfortunately, the Lebanese parliament has done little to nothing to resolve the country’s multiple problems without any comprehensive reform.
Furthermore, Judge Tarek Bitar announced on Monday that he was resuming his investigation into Beirut blast, after a 13-month suspension caused by legal wrangling and high-level political pressure. However, Lebanon’s top public prosecutor Ghassan Oweidat objected and filed charges against Bitar for allegedly mishandling the inquiry. Families of those killed in the blast, members of parliament and other Lebanese assembled in front of the justice palace on Thursday to demand that the investigation carries on. Unfortunately, in Lebanon there is complete disregard for the crime and families of the victims are being wronged
Despite these negative developments, 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), increased remarkably by 5.89% over the week, to stand at 6.67 points by the week ending January 26, 2023, and it increased by 10.6% Year to date (YTD). As for the JP Morgan EMBI, it grew by 0.05% to stand at 796.01 by the end the week of January 26, 2023, compared to 795.58 by the end of the week of January 19, 2023.
Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds recorded respectively a downfall of 425 and 540 basis points (bps) to stand at 131.95% and 106.9% by the week ending January 26, 2023, compared to the week of January 19, 2023.
In the U.S market, The Treasuries yield curve remains flattened, but the yield curve is still pointing towards an eminent recessionary scenario as the yields on six months and one year reached the highest figures of 4.79% and 4.68% respectively.
Jobless claims remained surprisingly low for the week ending January 21. They unexpectedly dropped to 186,000 compared to 192,000 in the prior week, thus painting a picture of a resilient economy rather than one headed for a recession. The labour market remains the clearest source of optimism in the economy despite high-profile job cuts in tech. In fact, the unemployment rate remains low standing at 3.5%.
U.S. gross domestic product (GDP) increased at an annual rate of 2.9% in the fourth quarter of 2022, prior to 3.2% in the third quarter, but nonetheless a solid end to an upside-down year in which the economy contracted in the first six months. The continued growth in the fourth quarter showed the resilience of consumers and businesses in the face of inflation and rising interest rates.
However, the U.S. economy faces many challenges in 2023 as inflation remains too high. The Federal Reserve is expected to continue increasing rates but to downshift to a 25 basis point hike at their upcoming meeting next week. In fact, despite easing inflation, it’s likely too soon for the Fed to stop raising rates. Furthermore, the US has reached its debt ceiling on January 19, 2023 as it currently stands at $31.4 trillion. Lawmakers must reach an agreement to either raise or suspend the debt limit to avoid a credit default. Raising this limit would allow the government to borrow more to cover spending already approved by Congress. Failure to raise the ceiling would mean the government would eventually fail to pay back its debts, including interest payments on Treasury bonds, thus technically putting the U.S. government in default. If Congress does not reach an agreement and the U.S. defaults on its obligations, it is expected to have severe effects on the economy and would almost certainly roil the financial markets globally. Millions of Americans could see higher borrowing costs and delays in receiving government checks like Social Security or military pay. Nevertheless, the U.S. has never defaulted on its debt and will very likely take steps to avoid a default, noting that the debt ceiling has been raised 45 times in the last 40 years.
In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a fall from 13,272 and 10,891 bps to 12,837 and 10,341 bps respectively by the week ending January 26, 2023.
|5Y Credit Default Swaps (CDS)|
Weekly Change of Lebanese Eurobonds Prices
|Maturity||Coupon in %||26/01/2022||19/01/2023||Change||26/01/2022||19/01/2023||Change bps|
Source: BLOMInvest Bank