The Lebanese Eurobonds market experienced a notable improvement over the course of this week, primarily attributed to the positive developments surrounding Lebanon’s gas exploration endeavors. This positive shift in the index reflects the optimism and increased investor confidence resulting from Lebanon’s foray into offshore gas exploration. However, it’s important to recognize that the impact on the Lebanese Eurobonds market is also contingent on various other factors, such as geopolitical stability, successful project execution, and broader economic reforms. While the positive environment surrounding gas exploration can certainly influence the market, its sustained improvement will depend on Lebanon’s ability to effectively capitalize on the opportunities presented by the gas sector and address its ongoing challenges

In this context, 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), slightly increased this week by 1.59% to stand at 7.69 points by the week ending August 24, 2023. As for the JP Morgan EMBI, it added 0.79% to stand at 793.32 by the week of August 24, 2023 compared to 787.10 by August 17, 2023.

Furthermore, the yield on the five years (5Y) and the 10 years (10Y)  Lebanese Eurobonds dropped by 90 bps and 55 bps to stand respectively at 128.05% and 89.70% by the week ending August 24, 2023 compared to the previous week.

As for the US Bonds market, an increase in U.S. bond yields recently has coincided with limited predictions for inflation. This has been an indication that economic strength and substantial bond issuance are becoming more significant factors than speculating on the Federal Reserve’s actions. This week, despite some drop, the 5-year and 10-year yields reached levels close to the highest point in 16 years, standing respectively at 4.39% and 4.23% by August 24, 2023. The recent surge was driven by fears surrounding U.S. Federal Reserve Chair Jerome Powell potentially conveying a hawkish stance on maintaining elevated interest rates during the annual Jackson Hole symposium scheduled for Friday.

However, the surge in bond yields over the past few months has seen a shift in recent weeks. Expectations regarding the speed of price increases have declined and Investors are identifying signs that a new set of factors is now influencing the situation. This includes the Bank of Japan allowing yields to rise, potentially reducing the interest of foreign investors in Treasuries. Additionally, there’s been an uptick in the supply of U.S. government bonds, prompting investors to demand higher returns for holding increased debt.

On a different note, the job market is still showing signs of tightness with new claims filed for unemployment benefits falling. Initial claims came in at 230,000 for the week ending August 19 a noticeable level below economists’ expectation of 240,000. Continuing jobless claims, which reflect ongoing unemployment benefits for workers who have already filed a claim, were 1.702 million, slightly above the prior week’s level of 1.711 million and the consensus of 1.69 million.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a slight drop from 12,453 bps and 8,595 bps to 12,366 bps and 8,547 bps by the week ending August 24, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank