Israel continues its airstrikes on Gaza, a region with more than 2 million residents. Lebanon, situated to the north of Israel and sharing a border, appears to be getting involved in the escalating conflict between Israel and Hamas. Indeed, the militant group Hezbollah has already engaged in missile exchanges with Israel, leading to heightened tensions along the border. As such, the UK’s Foreign Office (FCDO) has upgraded its guidelines for Lebanon, advising against all travel and urging British citizens to leave due to rapidly evolving events and the potential for a deteriorating situation. The Australian, US, Canadian and European governments, including Ireland and France, have also issued ‘no-go’ travel warnings for Lebanon.

As such, 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 notably by 2.27% to stand at 6.6 points by the end of the week of October 19, 2023. As for the JP Morgan EMBI, it dropped by 1.54% to stand at 757.21 by the week of October 19, 2023 compared to 769.09 in the previous week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 300 and 280 bps to stand at 146.5% and 103.3%, by the week ending October 19, 2023 compared to the previous week.

US yield curve has started to un-invert as 5 and 10 years’ yields increased respectively 26 and 28 basis points throughout the week to stand at 4.95% and 4.98% on October 19, 2023. Meanwhile, 6 months yields increased by 2 basis points to stand at 5.56% on October 19, 2023.

Applications for US unemployment benefits dropped last week to the lowest level since January as the labor market kept powering ahead. Indeed, initial jobless claims fell by 11,000 to stand at 198,000 in the week ending October 14, according to Labor Department data. That was below all estimates in a Bloomberg survey of economists. Nonetheless, volatility around the Columbus Day holiday likely explains the unexpected fall in initial jobless claims. Additionally, continuing claims, a proxy for the number of people receiving unemployment benefits, rose to 1.73 million in the week ending October 7. That marked the highest level since July, indicating that it’s taking longer for unemployed workers to find a job.

Thursday’s reading returned initial filings for unemployment insurance to near the lowest levels since the pandemic began, showcasing a labor market that continues to defy economists’ projections. Appetite for workers remains high, with employers across sectors adding jobs at a solid pace.  Moreover, looking ahead, the strike by the United Auto Workers union against the three largest automakers in the US could lead to an uptick in jobless claims. It is worth mentioning that striking workers don’t qualify for unemployment benefits in most states.

Persistently high inflation and tight labor markets could warrant further interest rate increases according to Federal Reserve chairman Jerome Powell.  Indeed, the Federal reserve remains attentive to recent data showing the resilience of economic growth and demand for labor. While Mr. Powell left open the possibility of a future increase if policymakers see further signs of resilient economic growth, he also suggested the Fed was inclined to hold interest rates steady again at its next meeting on November 1. As such, the Fed will likely keep its benchmark interest rate steady at the current 5.5%.

Finally, since the Fed began raising interest rates in March 2022 to tame inflation, the unemployment rate has varied little from the current 3.8%. This is below the level most Fed officials feel is noninflationary. Furthermore, overall economic growth has generally remained above the 1.8% annual growth rate and new data of US GDP for the third quarter of 2023 is set to be released next week and is expected to surge remarkably to 4.7%.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 13,881 and 9,580 bps to 14,155 and 9,832 bps respectively by the week ending October 19, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank