Senior Hamas official Saleh al-Arouri has been killed on January second in an Israeli drone strike on Beirut’s southern suburb of Dahiyeh. The following day, Hezbollah leader Hassan Nasrallah delivered a speech stating that the Lebanon-based group does not fear war with Israel but didn’t announce a larger-scale escalation. 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 throughout the course of this week, by 0.97% to stand at 5.8 points by January 4, 2024. As for the JP Morgan EMBI, it declined by 1.77% to stand at 833.97 by the week of January 4, 2023 compared to 849.03 in the previous week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 200 and 190 bps to stand at 164.3% and 115.05%, by the week ending January 4, 2024 compared to the previous week.

US yield curve shifted higher over the course of the week as one, five and ten years yields increased respectively by 3, 14 and 15 bps to stand at 4.85%, 3.97% and 3.99% by January 4, 2024 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, and is now forecasting that it will reverse policy and cut rates three times next year.

Initial jobless claims for the last week of December dropped below all survey estimates in the absence of holiday-related layoffs. Indeed, U.S. initial jobless claims dropped remarkably by 18k to stand at 202,000 in the week ending December 30, the lowest level since the week of October 13. However, seasonal layoffs could spike in early January, and layoffs should play a much larger role in cooling the labor market this year.

Bloomberg Economics’ projection for the fourth quarter of 2023 suggested a decline in quarter-on-quarter growth to 1.3% from the previous 4.9%. This forecast indicates a slowdown, which aligns with the notion that previous rate increases by the Fed are starting to impact the economy, yet it may also lessen the anticipation of an immediate recession.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 15,847 and 10,931 bps to 16,033 and 11,106 bps respectively by the week ending January 4, 2024.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank