Contract for Terminal 2 at Rafic Hariri Airport Cancelled

30/03/202323/03/2023 ChangeYear to Date
BLOM Bond Index (BBI)6.777.01-3.33%12.31%
Weighted Yield          175.37%169.40%3.52%99.69%
Weighted Spread17041164643.50%94.18%

30/03/202323/03/2023 Change
JP Morgan EMBI782.84782.180.08%
5Y LEB135.90%132.60%330
10Y LEB106.25%103.75%250
5Y US3.66%3.39%27
10Y US3.55%3.38%17
5Y SPREAD                   13,224                     12,921303
10Y SPREAD                   10,270                     10,037233


The Lebanese Eurobonds market is still recording an all-time worst performance below the 7 cents during the course of the week. This week, Lebanon’s bankrupt state has turned to the private sector to fund a new terminal at Rafik Hariri International Airport, through a partnership with the Lebanese Air Transport and Irish airport company DAA International. However, the mentioned contract was cancelled on March 30, following criticism that no public bidding was held for the $122 million project. In fact, critics have blasted Lebanon’s rulers for lack of transparency and for squandering public money through various contracts to businessmen in their circles.

Consequently, 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), dropped further this week by 3.33% to stand at 6.77 points by the week ending March 30, 2023. As for the JP Morgan EMBI, it slightly increased by 0.08% to stand at 782.84 by the week of March 30, 2023 compared to 782.18 by the end the week of March 23, 2023.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds jumped by 330 and 250 basis points (bps) to stand at 135.9% and 106.25% respectively by the week ending March 30, 2023, compared to the previous week.

The U.S. Treasury Yield Curve shifted higher this week as one and five years yields grew respectively by 25 and 27 bps to stand at 4.63% and 3.66%. Moreover, three months yield rose by 24 basis points reaching the highest figure of 4.97% by March 30, 2023, thus still indicating an inverted yield curve and still showing further signs of an upcoming recession.

The two-year Treasury yield is at 4.1%, below the 4.83% federal-funds rate, which is the amount banks charge one another for overnight borrowings. Normally, the two-year yield is higher than the fed-funds rate because investors demand more returns for securities that mature later, given the risk of inflation and changes in interest rates. But sometimes, the two-year yield is lower than the fed-funds rate. That so-called inversion has happened nine times since 1999. Most times, it happened because fixed-income investors believed the economy would come under stress, prompting the Fed to cut rates. Currently, investors are concerned over bank failures in addition to the fact that the nine consecutive interest hikes are still slowly taking effect on the economy.

Furthermore, investors are anticipating that inflation will stay higher for longer because they expect the Federal Reserve will abandon its fight for price stability prematurely to support the financial sector. Traders are betting that banking-sector turmoil will lead the Fed to pause its year-long tightening campaign soon, with rate cuts to follow. It’s a backdrop that would potentially reignite inflation, which has spurred demand for Treasury Inflation-Protected Securities the past couple weeks.

U.S. applications for jobless benefits rose last week but remain at historically low levels despite efforts by the Federal Reserve to cool the economy and the job market. In fact, as per the Labor Department, jobless claims in the U.S. rose weekly by 7,000 to stand at 198,000, for the week ending March 25, thus remaining below the 200,000 threshold for the tenth straight week. Nevertheless, in its latest quarterly projections, the Fed predicts that the unemployment rate will rise from its current 3.6% to 4.5% by year’s end, a sizable increase historically associated with recessions. In fact, despite the strong U.S. labor market, layoffs have been mounting in the technology sector, where many companies hired aggressively during the pandemic. Furthermore, the real estate sector has taken the biggest hit from the Fed’s interest rate hikes, driven by higher mortgage rates, which have come down recently to 6.32% and have slowed down home sales.

On another note, 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. Although, the debt ceiling has been forgotten amid the banking turmoil, however it has the potential to cause chaos of its own. Experts believe that the debt ceiling will eventually get solved, but the turmoil involved will increase the risk that more things might break.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 12,921 and 10,037 bps to 13,224 and 10,270 bps respectively by the week ending March 30, 2023.

5Y Credit Default Swaps (CDS)
Lebanon . .
 Source: Bloomberg


Weekly Change of Lebanese Eurobonds Prices 

Maturity Coupon in %30/03/202323/03/2023Change 30/03/202323/03/2023Change bps

Source: BLOMInvest Bank

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