On Thursday, January 25, the Lebanese Parliament convened for its third session to discuss the 2024 budget. Some MPs expressed concerns about flaws in the budget and emphasized the need for progressive taxes while others argued that the budget lacks financial reforms and highlighted the pressing need to elect a new head of State and boost economic growth. Indeed, neither the government nor the parliament takes practical steps to overcome the economic and political impasse; and no reform laws are being passed.

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), slightly dropped throughout the course of this week, by 0.02% to stand at 5.3 points by January 25, 2024. As for the JP Morgan EMBI, it dropped by 0.13% to stand at 831.26 by the week of January 25, 2023 compared to 832.31 in the previous week.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds decreased by 65 bps to stand at 117.15%. Meanwhile, the yield on the ten years (10Y) Lebanese Eurobonds increased by 10 bps to stand at 116.9% by the week ending January 25, 2024 compared to the previous week.

US yield curve shifted lower over the course of the week as one and five years yields decreased respectively by 4 and 3 bps to stand at 4.76%, and 4.01% by January 25, 2024 compared to the previous week.

In December 2023, US inflation reached 3.4%, signaling a gradual disinflation process. The Bureau of Labor Statistics reported that both headline and core measures of the consumer price index fell short of anticipated disinflation. US inflation hit a low of 3% last June, but has been rising ever since. Nevertheless, the process of disinflation will not be a straight line down, requiring further patience from the Fed before officially transitioning towards an easing cycle.

Fourth-quarter GDP growth significantly beat expectations, boosting optimism that the Fed can deliver a soft landing. Real GDP growth cooled to a strong 3.3% pace in 4Q (vs. 4.9% prior). That was above Bloomberg Economics’ estimate of 1.8% and consensus expectations of 2%.

US jobless claims rose by 25k to stand at 214k in the week ending January 20, up from 189k in the week prior and exceeding the consensus estimate of 200k. Abnormally cold weather in the lower 48 states likely contributed to the uptick in seasonally adjusted claims. Additionally, firms are increasingly announcing layoffs, thus jobless claims are expected to continue rising in the weeks and months ahead. Initial and continuing jobless claims – both near their lowest levels of the past half-century – would suggest the labor market is still tight, and the 5.25 points of Fed rate hikes over the past two years have done little to loosen it.

Nonetheless, Bloomberg economists caution against taking these figures at face value. They argue that the data may be suppressed due to a historically low percentage of unemployed individuals applying for benefits, influenced by a combination of low eligibility rates and a reduced income-coverage ratio caused by inflation. If these factors had remained similar to levels before past recessions, non-seasonally adjusted continuing claims would have been about 500k higher over the past year.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downturn from 11,376 bps to 11,314 bps. Meanwhile, the 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 11,266 to 11,276 bps by the week ending January 25, 2024.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank