Strong US Economy is weighing on Fed Next Move

26/10/202319/10/2023 ChangeYear to Date
BLOM Bond Index (BBI)6.356.60-3.76%5.31%
Weighted Yield          192.30%184.94%3.98%118.97%
Weighted Spread18672179354.11%112.76%



26/10/202319/10/2023 Change
JP Morgan EMBI762.35757.210.68%
5Y LEB150.05%146.50%355
10Y LEB107.05%103.30%375
5Y US4.79%4.95%-16
10Y US4.86%4.98%-12
5Y SPREAD                   14,526                     14,155371
10Y SPREAD                   10,219                        9,832387


The situation in Lebanon has become increasingly complex, particularly in the wake of the conflicts between Hamas and Israel. The ongoing turmoil in the region has added to the existing economic and political challenges faced by Lebanon. The country has yet to resolve its defaulted Eurobonds with creditors, and the future of these Eurobonds remains uncertain. This financial crisis further exacerbates the economic hardship and instability in Lebanon, as the government grapples with dwindling foreign exchange reserves, soaring inflation, and a deteriorating living standard for its citizens. The ongoing conflicts and economic woes have created a precarious and uncertain environment in Lebanon, with many hoping for a path towards stability and recovery.

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), deteriorated rapidly since the start of the conflict in Palestine and dropped further this week by 3.76% to stand at 6.35 points by the end of the week of October 26, 2023. As for the JP Morgan EMBI, it added 0.68% to stand at 762.35 by the week of October 26, 2023 compared to 757.21 in the previous week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 355 and 375 bps to stand at 150.05% and 107.05%, by the week ending October 26, 2023 compared to the previous week.

US Treasury yields dropped this week following a raft of fresh US economic data as investors are watching closely Federal Reserve’s next policy moves. In more details, 5Y and 10Y yields dropped respectively by 16 bps and 12 bps to stand at 4.79% and 4.86%, By Friday October 26, 2023. Meanwhile, 1Y, 2Y and 3Y yields followed the same trend and ended up the week, respectively, at 5.39%, 5.02%, and 4.89%.

Despite latest fall in US T-bills triggered by the rush to buy the riskless US Treasuries due to possible regional war in the Middle East, yields remained at their highest levels in decades. The strong economic reading validated the high yields in recent months as the US economy is experiencing its fastest growth in almost two years, primarily driven by robust consumer spending. This economic surge, which saw the Gross Domestic Product grow at an annualized rate of 4.9%, more than twice the pace of the second quarter, as per the government’s initial assessment released this week. The main driver of this growth was personal spending, which surged by 4%, marking its most significant increase since 2021. Additionally, a closely monitored indicator of underlying inflation showed a more substantial decline than anticipated, reaching its slowest pace since 2020. This strong economic performance will face upcoming challenges in the months ahead. Nevertheless, signs of a potential economic slowdown emerged as last week’s jobless claims, ending on Oct. 21, exceeded expectations, reaching 210,000 compared to the expected 207,000.

These developments precede the Federal Reserve’s upcoming rate decision on first of November. While it’s widely anticipated that the Fed will maintain the current interest rates, the strong GDP reading might give them pause before signaling an end to their rate-hiking cycle.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 14,155 and 9,832 bps to 14,526 and 10,219 bps respectively by the week ending October 26, 2023.



5Y Credit Default Swaps (CDS)
 Source: Bloomberg





Weekly Change of Lebanese Eurobonds Prices 


Maturity Coupon in %26/10/202319/10/2023Change 26/10/202319/10/2023Change bps

Source: BLOMInvest Bank

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