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. Indeed, both Jean Abboud, the head of travel agencies and offices and Tony El Rami, the head of the restaurant owners’ syndicate, have sounded the alarm on the dire state of Lebanon’s tourism and hospitality sectors. Abboud described the situation as catastrophic, revealing that daily ticket sales have plummeted from $2.2 million to $500,000 while inbound tourism has also declined by 95%. Additionally, the restaurant industry has also been severely impacted, experiencing a staggering decline of up to 80% in business.

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 5.62% to stand at 6 points by November 2nd, 2023. As for the JP Morgan EMBI, it added 2.15% to stand at 778.76 by the week of November 2nd, 2023 compared to 762.35 in the previous week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 665 and 445 bps to stand at 156.7% and 111.5%, by the week ending November 2nd, 2023 compared to the previous week.

The US yield curve is currently undergoing a bull flattening, which is seen as a positive response to the Treasury’s announcement of increasing the issuance of longer-term securities, albeit by a slightly smaller amount than initially expected. This trend reflects concerns about the recent uptick in yields. Yields have seen a significant rise since August, particularly with a more than 75 basis-point increase in 10-year rates. Despite this, the Treasury Secretary has denied that increased government borrowing is the sole cause of this movement.

Furthermore, there has been a 5,000 increase in US jobless claims, bringing the total to 217,000 for the week ending October 28, 2023. Continuing jobless claims, which represent the number of people receiving unemployment benefits, have risen to 1.82 million, reaching their highest level since April, according to Labor Department data. The slight increase in initial jobless claims, along with the persistent rise in continuing claims, indicates that the labor market may start slackening a bit. Household survey data has shown that the number of people becoming unemployed is increasing more quickly than those transitioning out of unemployment, typically a sign of an impending rise in the unemployment rate.

Additionally, ongoing applications for unemployment benefits have risen for a sixth consecutive week, indicating that individuals who lose their jobs are facing challenges in finding new employment opportunities. While companies continue to add jobs at a healthy pace and the unemployment rate remains low, the pace of hiring has slowed, leading some job-seekers to experience longer job searches.

However, a separate report released on the same day reveals that US labor productivity has increased at the fastest rate in three years. This boost in labor productivity is helping to counteract the inflationary effects of recent wage growth.

After the central bank decided to leave interest rates unchanged on Wednesday, for the second consecutive policy meeting, Chair Jerome Powell hinted the US central bank may now be finished with the most aggressive tightening cycle in four decades. However he reiterated that if evidence suggests that the job market is no longer cooling, thus putting further pressure on inflation, that could warrant further tightening of monetary policy.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 14,526 and 10,219 bps to 15,205 and 10,683 bps respectively by the week ending November 2nd, 2023.

 Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank