Demand for Lebanese Eurobonds marginally strengthened during the week, illustrating the positive investor expectations despite ongoing political quarreling. This translated into the BLOM Bond Index (BBI) increasing weekly by 0.15% to 107.56 points. Yet it still was outperformed by the JP Morgan emerging markets’ bond index, which gained a 0.28% to reach 692 points over the same period.
The yield on the 5Y Lebanese notes up-ticked by a weekly 1 basis point (bp) to 5.23% while that of the 10Y dropped by 2 bps to settle at 6.02% over the same period. On the global level, the US bond market witnessed a poor performance as the yields on the 5Y and 10Y US benchmark notes increased by 6 bps each to 1.37 % and 1.96%, respectively.
The poor position on the US treasury market might have been due to the “wait and see” approach from investors as recent stories linger whether or not the Federal Reserve will be rising interest rates soon. Many Investment Banks, such as Deutsche Bank have been negatively impacted from the slowdown in fixed income trading, which is the main portion of their earnings. Deutsche Bank is faced with a $2.5B lawsuit as they were allegedly rigging lending rates to offset slow activity on the fixed income market.
Accordingly, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable respectively narrowed from 391 bps and 414 bps to 386 bps and 406 bps over the same period, on account of the lower demand for US notes
Lebanese 5Y Credit Default Swaps (CDS) narrowed weekly from 372-396 bps compared to 371-393 bps. On regional economies, 5 year CDS quotes of Saudi Arabia and Egypt remained unchanged at respective quotes of 69-76 bps and 314-338 bps. In contrast , Brazil’s and Dubai’s 5 year CDS quotes contracted from 237-239 and 202-215 bps to 219-223 bps and 199-211 bps, respectively on April 23,2015. In addition Turkey’s 5Y CDS quote slightly recovered from last week’s quote of 230-234 bps to 228-231 bps despite the Turkish Lira falling to an all-time low versus the dollar of TL/USD 2.71, on the back of political tensions and failure from the Turkish Central Bank to deliver currency supportive measures. Due to the falling Lira, the Central Bank is unable to cut interest rates in order to spur growth.