Central Bank governor, Riad Salameh, whose 30-year tenure as governor has been stained lately by charges of embezzlement of public funds in Lebanon, is expected to leave his post when his term ends in late July. As such, on July 6^th, the deputy governors of Lebanon’s central bank have urged the authorities to promptly select a new leader to replace Riad Salemeh before his term ends. If a successor is not appointed soon, the four deputy governors Wassim Manssouri, Bachir Yakzan, Salim Chahine and Alexandre Mouradian have expressed their intention to take action, potentially leading to their resignation.

Consequently, the Lebanese Eurobonds market is still recording an all-time worst performance below the 7 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), increased this week by 1.01% to stand at 6.4 points by the week ending July 6, 2023. As for the JP Morgan EMBI, it dropped by 0.92% to stand at 790.72 by the week of July 6^th, 2023 compared to 798.09 by June 27, 2023.

Furthermore, the yield on the five years (5Y) and (10Y) Lebanese Eurobonds dropped respectively by 8 and 10 bps to stand at 139.35% and 105.2% by the week ending july 6, 2023 compared to the previous week.

US yield curve shifted higher on July 6^th, 2023, as six months, five years and ten years treasury bills increased respectively by 8, 35 and 28 bps on July 6, compared to the previous week. Moreover, six months treasury yield reached the highest figure of 5.54%, thus still indicating an inverted yield curve.

Moreover, initial jobless claims for the week ending July 1 increased by 12,000 to stand at 248k. The reading was above the consensus of 245k but below Bloomberg Economics’ projection of 260k. The increase came mostly from Michigan (+6.7k), New York (4.3k), Ohio (3.0k), Kentucky (2.5k), California (1.8k), Indiana (1.6K) and Tennessee (1.5k). The uptick in jobless claims was expected and long time coming, thus suggesting further dismissals in the job market.  As such, supply and demand of labor are coming into better balance as the labor market gradually cools. Moreover, economists expect layoffs to pick up later this year and the unemployment rate to increase to 4.3% in the fourth quarter of 2023. In fact, unemployment rate is expected to peak in the third or fourth quarter of 2024 as layoffs tend to be most pronounced two or three quarters after a recession begins, which is expected sometime in the second half of this year.

Despite signs of a weakened labor market in the US, the Federal Reserve appears resolute in its decision to persist with raising interest rates after a temporary pause in June. To elaborate further, policymakers halted their efforts to tighten monetary policy last month after implementing 10 successive rate hikes within a span of 15 months. Nevertheless, they conveyed that additional rate increases were probable before the end of the year. Recently, Fed Chairman Jerome Powell indicated that he believes the labor market is still too tight, necessitating further interest rate hikes to achieve the target of inflation 2% considering the current rate of 4%.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded respectively a slight drop from 13,541 to 13,498 bps and 10,153 to 10,115 bps, by the week ending July 6, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank