The Lebanese Eurobonds market is still recording an all-time worst performance below the 7 cents during the course of the week. The United States calls on Lebanon’s political leadership to move expeditiously to elect a new president as the country marked six months without a head of state. 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 0.35% to stand at 6.19 points by the week ending May 4, 2023. As for the JP Morgan EMBI, it rose by 0.64% to stand at 790.56 by the week of May 4, 2023 compared to 785.54 by the end the week of April 27, 2023.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds rose respectively by 40 and 50 basis points to stand at 144.8% and 115.55% by the week ending May 4, 2023, compared to the previous week.

Fears about a political standoff over the US debt limit are driving up rates on short-term Treasury bills. Such a steep inversion of the yield curve would typically be seen as a bond-market warning that a deep recession is coming. But in this case, concerns about the fallout of an unprecedented US default are also playing a major role. In more details, Treasury bill rates have jumped since Treasury Secretary Janet Yellen warned on Monday that the federal government is at risk of running out of cash as soon as June 1 if an agreement to lift the debt limit isn’t struck. President Joe Biden reported that he is unwilling to offer concessions in return for raising the debt ceiling, accusing Republican lawmakers of holding the nation’s economy hostage. Nevertheless, House Speaker Kevin McCarthy has said the GOP will not pass an extension without spending cuts. As such, rates on bills maturing near June have seen the most intense climb higher. In more details, the risk that Congress will fail to act drove 3-month Treasury bill yields to over 5.25% and 1-month Treasury bill to over 5.75%. That’s the most since the data compiled by Bloomberg begin in 1992. The widening of the gap has also been fueled by a slide in long-term Treasury yields as traders increase bets that the Federal Reserve will start easing monetary policy later this year after its aggressive rate-hiking cycle.

Applications for US unemployment benefits rose by the most in six weeks while continuing claims fell, flagging some softening in a labor market that remains relatively resilient. Initial unemployment claims rose by 13,000 to 242,000 in the week ending April 29 as per the Labor Department. Continuing claims, which include people who have received unemployment benefits for a week or more and are a good indicator of how hard it is for people to find work after losing their jobs, fell by 38,000 to 1.81 million in the week ending April 22. That marked the biggest drop since July. Even as the labor market starts showing some weakness, it’s still cooling at a much slower pace than other economic indicators in the wake of an aggressive tightening campaign by the Federal Reserve.

After raising interest rates by a quarter point on Wednesday, Fed officials are now expected to pause their tightening campaign and let the higher borrowing costs make their way through the economy,  which they hope will eventually translate into some cooling in the job market.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 14,080 and 11,152 bps to 14,151 and 11,218 bps by the week ending May 4, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank