|24/05/2023||18/05/2023||Change||Year to Date|
|BLOM Bond Index (BBI)||5.69||6.07||-6.31%||-5.62%|
|JP Morgan EMBI||776.81||779.92||-0.40%|
Lebanon’s central bank governor, Riad Salameh, underwent questioning in Beirut by a judge earlier this week, following the issuance of a Red Notice by Interpol as part of a global corruption investigation. Imad Kabalan, the attorney general at the Court of Cassation, conducted a closed-door interrogation with Mr. Salameh. The judiciary instructed Mr. Salameh to surrender both his French and Lebanese passports. While he is now prohibited from leaving the country, he continues to hold his position in the central bank. The Interpol notice was prompted by a request from the French judiciary, which issued an arrest warrant for Mr. Salameh after his failure to attend a hearing in Paris regarding allegations of embezzling over $330 million from Lebanon’s central bank. Consequently, he was labeled as a fugitive.
Consequently, the Lebanese Eurobonds market is still recording an all-time worst performance below the 6 cents during the course of the week. 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), fell remarkably this week by 6.31% to stand at 5.69 points by the week ending May 24, 2023. As for the JP Morgan EMBI, it dropped by 0.4% to stand at 776.81 by the week of May 24, 2023 compared to 779.92 by the end the week of May 18, 2023.
Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds dropped respectively by 50 and 125 basis points to stand at 147.3% and 115.85 by the week ending May 24, 2023, compared to the previous week.
US yield curve shifted higher this week as one, five and ten year yields rose respectively by 10 bps, 6 bps and 8 bps to stand at 5.12%, 3.75% and 3.73% on May 24. Moreover, the U.S. Treasury yield curve entered an unprecedented state, with one-month yield rising above three-month yield, due to investors’ mounting concern about the U.S. debt ceiling situation. In fact, one month yield reached the highest figure of 5.73% on May 24, thus many investors believe the economy is now destined for a recession.
Applications for US unemployment benefits rose by 4,000 weekly to stand at 229,000 in the week ending May 20 as per the Labor Department data. Indeed, the previous two weeks were revised down by a combined 50,000 due to fraudulent claims. Consequently, the new data show the labor market isn’t softening nearly to the extent that some thought it was. In fact, the overall level of claims is still fairly low, indicating resilient demand for workers. Additionally, 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, edged lower to 1.79 million in the week ending May 13.
Moreover, Fed officials have been debating whether to keep raising rates or leave them steady next month. Fed Chair Jerome Powell said late last week that his team could afford to keep monitoring data as they set the course of policy. Fed Governor Christopher Waller confirmed that it’s premature to declare the tightening cycle is over and a decision whether to raise interest rates next month or skip a move will hinge on key data over coming weeks.
Finally, Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, to avert a catastrophic US default. The two sides have narrowed differences in talks over recent days, though the details agreed to are tentative and a final accord is still not in hand. Therefore, the two sides have yet to agree on the amount of the cap. Negotiators have been clashing over the scale and length of limits on spending to be included in a bill raising or suspending the debt ceiling. Economists have warned that even with a deal that avoids a devastating payments default, caps on government outlays could help to tip the US into a recession.
In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a drop from 14,411 and 11,345 bps to 14,355 and 11,212 bps respectively by the week ending May 24, 2023.
|5Y Credit Default Swaps (CDS)|
Weekly Change of Lebanese Eurobonds Prices
|Maturity||Coupon in %||24/05/2023||18/05/2023||Change||24/05/2023||18/05/2023||Change bps|
Source: BLOMInvest Bank