This week, Lebanese banks started an open-ended strike while keeping ATMs operating for basic services. Indeed, banks are urging authorities to pass overdue measures to deal with a deep financial crisis in addition to a capital control law. The decision came after a meeting by the Association of Banks to discuss judicial measures against banks that have snowballed since the onset of the crisis. The banks also called for banking secrecy regulations to be abolished, retroactively, which would allow lenders to share data with authorities and the judiciary for financial investigations.

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), slightly increased by 0.97% over the week, to stand at 7.41 points by the week ending February 8, 2023 and it increased by 22.87% Year to date (YTD). As for the JP Morgan EMBI, it fell by 2.18% to stand at 788.98 by the week of February 8, 2023 compared to 806.57 by the end the week of February 2, 2023.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds recorded a downfall of 20 basis points (bps) to stand at 123.9%, while the yield on the ten years (10Y) Lebanese Eurobonds recorded an uptick of 75 basis points (bps) to stand at 97.8% by the week ending February 8, 2023, compared to the previous week.

Treasury Yield Curve shifted higher on February 8^th, 2023 compared to the previous week. In fact, the yields on one, five and ten years rose respectively by 23, 33 and 23 bps to stand at 4.87%, 3.82% and 3.63% on February 8, 2023 compared to the previous week. Nevertheless, the curve remained pointing towards a recessionary scenario as the yields on six months reached the highest figures of 4.88%.

Federal Reserve Chair Jerome Powell reported that inflation is starting to ease, though he expects it to be a long process and cautioned that interest rates could rise more than markets anticipate if the economic data doesn’t cooperate. As such, Federal Reserve policymakers reiterated that it is important to stay the course and continue raising interest rates to bring inflation to its 2% target. In fact, as demand is slowing but remains resilient and labor markets are healthy, it shouldn’t be a surprise that inflation, while likely past its peak, is still elevated.

Initial jobless claims for the week ending February 4 increased to 196k from 183k prior, following a combined decline over the past five weeks. Still, it was the fourth straight week that claims held below 200k, underscoring the tightness of the labor market and implying that it will take some time to tamp down price pressures. Furthermore, continuing claims, or the number of people already collecting jobless benefits, jumped by 38k to 1,688k in the week ending January 28. That’s still below the pre-pandemic average of 1,697k, as laid off workers continue to find new jobs relatively quickly. That said, economists foresee only a
modest rise in layoffs over the near term with job cuts contained to a limited number of sectors.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a fall from 12,061 to 12,008. Meanwhile, the 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an uptick from 9,365 to 9,417 bps by the week ending February 8, 2023.

 Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank