US Inflation eased to 4.9% in April

11/05/202304/05/2023ChangeYear to Date
BLOM Bond Index (BBI)
Weighted Yield199.97%198.30%0.84%127.70%
Weighted Spread19479193110.87%121.96%


JP Morgan EMBI792.12790.560.20%
5Y LEB145.20%144.80%40
10Y LEB114.65%115.55%-90
5Y US3.36%3.29%7
10Y US3.39%3.37%2
5Y SPREAD14,18414,15133
10Y SPREAD11,12611,218-92


In an attempt to break the ongoing deadlock surrounding the presidential elections, opposition parties in Lebanon, namely the Free Patriotic Movement (FPM), Lebanese Forces, Kataeb Party, and Progressive Socialist Party, along with opposition blocs and MPs, have been actively participating in a series of meetings. Recently, an important meeting occurred between MP Sami Gemayel, the leader of the Kataeb Party, and MP Wael Abu Four, a member of the Progressive Socialist Party. Gemayel stated after the meeting that there would be increased communication in the coming days to make progress in resolving the presidential matter. While some opposition parties are hopeful that these meetings could yield positive outcomes in the near future, others remain doubtful about finding a solution. Nonetheless, they emphasized that efforts are underway to reach a consensus on a single candidate who would garner support from the opposition.

Unfortunately, the Lebanese Eurobonds market is still recording an all-time worst performance below the 7 cents during the course of the week. Nonetheless, 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), rose this week by 0.27% to stand at 6.21 points by the week ending May 11, 2023. As for the JP Morgan EMBI, it rose by 0.2% to stand at 792.12 by the week of May 11, 2023 compared to 790.56 by the end the week of May 4, 2023.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds rose by 40 basis points to stand at 145.2%; meanwhile the yield on the ten years (10Y) Lebanese Eurobonds fell by 90 bps to stand at 114.65% by the week ending May 11, 2023, compared to the previous week.

The U.S. Treasury yield curve entered an unprecedented state this week, with one-month yields rising above three-month yields for the first time since the subprime mortgage crisis, due to investors’ mounting concern about the U.S. debt ceiling situation.  The yield differential between one-month and three-month Treasury bills widened to more than 60 basis points on Thursday, the largest ever recorded since early 2008. Over the past three weeks, one-month yields have risen by more than 2 percentage points from 3.4% by April 20 to 5.81% by May 11. Finally, the US yield curve is now completely inverted between one month and five years, which is often seen by the market as a condition of danger that the debtor would be unable to meet its obligations in the near future.

US inflation was slightly weaker than forecast in April, bolstering hopes that the Federal Reserve’s interest rate increases are bringing price rises under control. In fact, consumer price inflation dipped to an annual rate of 4.9%, its lowest level since April 2021, noting that economists had expected it to remain steady at 5%.

Moreover, applications for US unemployment benefits rose to the highest level since October 2021, adding to evidence that the labor market is gradually cooling. Initial unemployment claims increased by 22,000 to 264,000 in the week ending May 6 as per the Labor Department. Additionally, continuing claims, which include people who have received unemployment benefits for a week or more, rose by 12,000 to 1.81 million in the week ending April 29.

Finally, the US economy is showing signs of softening as applications for unemployment benefits climbed to a more than one-year high and inflation continued to moderate. Consequently, chances are more likely that the Federal Reserve will pause its run of interest-rate hikes at next month’s meeting. Nevertheless, details beneath the surface show persistent inflationary pressures that officials are struggling to tame.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 14,151 to 14,184 bps. Meanwhile, 10Y spread recorded a drop from 11,218 bps to 11,126 bps by the week ending May 11, 2023.

5Y Credit Default Swaps (CDS)
 Source: Bloomberg

Weekly Change of Lebanese Eurobonds Prices 

MaturityCoupon in %11/05/202304/05/2023Change11/05/202304/05/2023Change bps

Source: BLOMInvest Bank

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