The Lebanese Eurobonds market is still recording an all-time worst performance below the 7 cents during the course of the week. On April 18, Lebanon’s parliament voted to postpone upcoming municipal and council elections due to the country’s economic crisis and political instability. This move was intended to prevent further political paralysis, given that Lebanon’s state institutions are already in a power vacuum. The presidency has been empty since Michel Aoun’s term expired in October 2022 and the government is currently operating in a limited caretaker capacity. The elections were originally scheduled for May, but funding had not yet been secured by the state. Instead, lawmakers agreed to a “technical extension” until May 31, 2024, which would protect one of the few remaining functioning state institutions

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 0.65% to stand at 6.43 points by the week ending April 19, 2023. As for the JP Morgan EMBI, it fell remarkably by 1.04% to stand at 781.71 by the week of April 19, 2023 compared to 789.92 by the end the week of April 12, 2023.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds fell by 75 basis points to stand at 140.5%, meanwhile the yield on ten years (10Y) Lebanese Eurobonds jumped by 125 basis points (bps) to stand at 111.6% by the week ending April 19, 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 19 bps to stand at 3.71% and 3.6%. Moreover, three months yield rose by 14 basis points reaching the highest figure of 5.16% by April 19, 2023, thus still indicating an inverted yield curve and still showing further signs of an upcoming recession.

Federal Reserve Bank of New York President John Williams said that while the banking sector has stabilized following the second-largest bank collapse in US history, the recent stress may make it more challenging for households and businesses to access credit. In fact, the failure of Silicon Valley Bank last month and the resulting market turmoil forced the Fed and other regulators to take emergency action to shore up confidence by providing the wider banking sector with liquidity. Nevertheless, despite the banking strains, Fed officials lifted interest rates by a quarter points at their March 21-22 meeting, extending their yearlong tightening campaign to fight high inflation.

Moreover, the latest inflation report showed signs of easing price pressures, as inflation fell to 5% by end of March, way below 6.04% in February. However, most Fed officials highlighted the need to continue with a tightening campaign in order to return price gains to their 2% target. As such, Fed’ policymakers are expected to raise rates by one additional quarter-point hike in their next meeting on May 2-3. In fact, Federal Reserve Bank of Atlanta President Raphael Bostic reported that he favors raising interest rates one more time and then holding them above 5% for a while to curb inflation. As such, markets are expecting a final rate increase on May 2-3.

US Jobless claims rose to their highest level in more than a year as the Federal Reserve cools the economy and job market in its battle against inflation. In fact, US jobless claims rose weekly by 11,000 to stand at 239,000 for the week ending April 8 as per the Labor Department. That’s the most since January of 2022 when 251,000 people filed for unemployment benefits. The job market seems to be finally showing some signs of softening; more than a year after the Federal Reserve began an aggressive campaign to cool inflation by raising its benchmark borrowing rate nine times in about a year. Additionally, America’s employers added a solid 236,000 jobs in March, suggesting that the economy remains on solid footing. Finally, the unemployment rate settled at 3.5% by March compared to 3.6% in February and 3.4% in January. Noting that in its latest quarterly projections, the Fed predicts that the unemployment rate will rise to 4.5% by year’s end, a sizable increase historically associated with recessions.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a drop from 13,779 to 13,679 bps. Meanwhile, the 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 10,694 to 10,800 bps by the week ending April 19, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank