Demand for the Lebanese Eurobonds tumbled during the week, after the rating agency Moody’s downgraded Lebanon’s government bond ratings from B1 to B2, on the 16th of December, 2014. The BLOM Bond Index (BBI) dropped 0.84%, to settle at 107.342 points, recording a 6-month low, but still with a 1.61% gain since year start. Low demand on medium and long-term maturities pushed 5Y and 10Y yields on the Lebanese Eurobonds up by 22 basis points (bps) and 12 bps to 5.39% and 6.30%, respectively.
Demand on emerging market bonds suffer as global growth abates and investors prepare for higher U.S. interest rates. This led the JP Morgan Emerging Countries’ bond index to drop by 0.57% to 654.43 points.
In the U.S, the Federal Reserve Chair Janet Yellen suggested that interest rates increase might occur by the middle of next year. This triggered demand for US treasuries to slow down, where the 5Y and 10Y yields added 6 bps and 3bps to 1.68% and 2.22%, respectively. Correspondingly, the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark broadened by 16 bps and 6 bps to 371 bps and 408 bps, respectively.
In Lebanon, the 5Y CDS went up from 377-407 bps to 386-416 bps, this week. Likewise the 5Y CDS of Dubai broadened from 198-212 bps to 210-230 bps, and that of Saudi Arabia from 65-75 bps to 70-80 bps. Internationally, the 5Y CDS of Turkey and of Brazil increased from 175-178 bps and 191-193 bps to 181-185 bps and 210-215 bps, respectively.