Since President Michel Aoun’s departure in October 2022, Lebanon has been unable to select a new president with Lebanon’s Parliament convened 12 sessions to elect a new president, but a consensus candidate remains elusive. After France’s attempt to resolve the matter, Qatar has recently stepped in to facilitate negotiations among Lebanon’s political factions with Jassim bin Fahad Al-Thani, a Qatari envoy, arriving in Lebanon to foster understanding among these rivals. In addition, Qatar’s Minister of State is scheduled to visit Lebanon in October to continue efforts to resolve the political standoff. Hopefully, Lebanon would see a prospect regarding its ongoing paralyzed political situation.

Concerning the Eurobonds market, 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), decreased slightly by 1.43% to stand at 7.86 points by the end of the week of September 28, 2023. As for the JP Morgan EMBI, it dropped further by 1.50% to stand at 773.86 by the week of September 28, 2023 compared to 785.66 in the previous week.

Internationally, a global bond selloff eased after dovish leaning comments from the Fed and reports of a possible meeting between US and Chinese leaders. In details, US treasury yield curve shifted higher this week, as 5Y and 10Y yields increased respectively by 1 and 10 bps to stand at 4.62% and 4.59%. Moreover, 3M yield is still at a record high figure of 5.56% as of September 28, 2023 keeping the yield curve inverted.

Earlier this month, the Fed stated that it expects to hike rates another quarter point this year and warned that borrowing costs will stay higher for longer. As such, markets participants are closely watching for signs of inflation, the possibility of a recession and the expectation of prolonged higher interest rates.

In term of data, investors will keep a close eye on the release of the personal consumption expenditure price index for August, a key inflation indicator preferred by the Federal Reserve. This data could provide insights into the current state of the US economy. On a different note, real gross domestic product GDP increased at an annual rate of 2.1% in the second quarter of 2023, according to the third estimate. In the first quarter, real GDP increased by 2.2% revised. The increase in the second quarter primarily reflected increases in business investment, consumer spending and state and local government spending that were partly offset by a decrease in exports while imports also decreased. Meanwhile, profits from current production increased $6.9B in the second quarter, an upward revision of $17.5B from the previous estimate. Interestingly, the number of Americans filing for unemployment benefits edged higher by 2,000 to 204,000 on the week ending September 23, 2023, well below market expectations of 215,000 to remain close to the seven month low in the earlier week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 70 and 120 bps to stand at 130.40% and 88.10%, by the week ending September 28, 2023 compared to the previous week.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 12,509 and 8,241 bps to 12,578 and 8,351 bps respectively by the week ending September 28, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank