During the weeks leading up to Christmas and the Holidays, Lebanon saw a rise in its economy, though it was still far from stabilizing. The market experienced increased business activities, especially in retail, due to festive shopping, which positively impacted the overall economic situation. However, the economic boost remains reliant on consumer confidence and external factors like conflicts in the South of Lebanon and broader regional issues. Despite efforts to maintain a sense of normalcy, Lebanon’s economy continues to struggle amid financial, political, and presidential election concerns, adding to the wider geopolitical tensions in the region.

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), improved throughout the course of this week, by 0.66% to stand at 5.84 points by December 21, 2023. As for the JP Morgan EMBI, it added 0.62% to stand at 846.51 by the week of December 21, 2023 compared to 841.29 in the previous week.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds increased by 70 bps to stand at 162%, while the yield on the ten years (10Y) Lebanese Eurobonds dropped by 50 bps to stand at 114.1%, by the week ending December 21, 2023 compared to the previous week.

US yield curve shifted lower over the course of the week as one, five and ten years yields fell respectively by 6, 3 and 3 bps to stand at 4.84%, 3.87% and 3.89% by December 21, 2023 compared to the previous week.

The Federal Reserve began raising interest rates last year to combat the inflation that surged as the result of an unexpectedly strong economic rebound from the COVID-19 recession of 2020. The Fed has raised its benchmark rate 11 times since March 2022. As such, inflation has eased as consumer prices were up by 3.1% from a year earlier, down from a four-decade high of 9.1% in June 2022 but still above the Fed’s 2% target. The Fed has left rates alone at its last three meetings, most recently last week, and is now forecasting that it will reverse policy and cut rates three times next year.

The number of Americans applying for unemployment benefits rose slightly last week but still remained at historically low levels despite high interest rates intended to slow hiring and cool the economy. Indeed, the Labor Department reported Thursday that jobless claims were up by 2,000 to stand at 205,000 by end of the week of December 16. Overall, 1.87 million Americans were collecting jobless benefits the week that ended December 9, little changed from the week before.

When the Fed started raising rates, many economists predicted that the United States would slide into recession. However, the economy and the job market have proven surprisingly resilient. The unemployment rate, for example, has come in below 4% for 22 straight months, the longest such streak since the 1960s. Lastly unemployment rate reached 3.7% by end of November 2023. Moreover, hiring has slowed but remains healthy.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downturn from 15,740 and 11,068 bps to 15,813 and 11,021 bps respectively by the week ending December 21, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank