Demand for Eurobonds Locally and in the US Increase during the Week ending 17 January

After standing as a safe haven currency for investors since the escalation of the Eurozone debt crisis, the exchange rate between the Swiss franc and the euro is no longer capped at 1.20 euros by the Swiss National Bank. The unexpected Swiss move has boosted demand in global bond markets all around the world, which was partly reflected on the Lebanese Eurobonds market this week. In details, the BLOM Bond Index (BBI) added a weekly 0.20% to 107.84 points. The local security uprisings in North Lebanon also enhanced demand for safe assets in the country, driving the 5Y and 10Y yields on the Lebanese Eurobonds down by 14 basis points (bps) and 9 bps to 5.14% and 6.02%, respectively.

In the U.S., investors’ appetite for Treasuries also went up ahead of the publication of an inflation report showing that consumer prices eased in December 2014. In fact, the 5Y and 10Y yields decreased 28 bps and 26 bps to reach 1.22% and 1.77%, respectively. Correspondingly, the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark widened by 14 bps and 17 bps to 392 bps and 425 bps, respectively.

  Despite the positive effect of the Swiss currency decision on global bonds markets, speculations of the Chinese government implementing additional steps to boost economic growth have sent Chinese stocks towards an 8-Year high. This was partly behind the subdued weekly performance of the JP Morgan Emerging Markets Index that posted a marginal 0.01% slip to 660.15 points.

Lebanon’s credit default swaps for 5 years (CDS) were last trading on Friday at 322-352 bps, narrowing from 358-388 bps recorded a week earlier. In regional economies, and while the 5Y insurance premiums on sovereign debt widened by a weekly average of 9 bps in Dubai to 234-254 bps, it remained flat at 60-80 bps in Saudi Arabia. As for emerging economies, CDS quotes in Brazil and Turkey were last trading at 208-213 bps and 177-181 bps compared to their respective previous 205-208 bps and 182-185 bps quoted a week ago.

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