Lebanese Eurobonds Market: Defying the Trend

Lebanese Eurobonds market improved this week, moving against the tide, as both emerging and US bonds lost ground. This translated into the BLOM Bond Index (BBI) increasing weekly by 0.47% to 107.93 points, outperforming the JP Morgan Emerging Markets’ Bond Index, which lost 0.29% to reach 690 points over the same period.

 The yields on the 5Y and 10Y Lebanese notes declined by a weekly 9 basis points (bps) and 10 bps to 5.14% and 5.92%, respectively. On the global level, the US Treasury market continued to witness negative activity as the respective yields on the 5Y and 10Y US benchmark notes augmented by 6 bps and 10 bps to 1.43% and 2.06%.

 US Bonds market has been taking a big hit over the past few weeks despite poor economic reviews such as housing sales slumping by about 11% and unemployment levels being higher than expected in March, coupled with GDP growth basically stalling at a lowly level of 0.2% in Q1 2015 compared to Q4 2014. As the uncertainty over the turning of the Fed rates hike increases, investors are shifting towards European bonds, especially that the quantitative easing is maintained and positive signs of a possible agreements between Greece and its main creditors are starting to emerge.

 Accordingly, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US counterparts respectively tightened from 386 bps and 406 bps to 371 bps and 386 bps over the same period, on account of the lower demand for US notes.

 Lebanese 5Y Credit Default Swaps (CDS) narrowed weekly from 371-393 bps to 365-388 bps. In regional economies, 5 year CDS quotes of Saudi Arabia and Turkey tightened over the week from 69-76 bps and 228-231 bps to 65-73 bps and 220-224 bps, respectively. The latter narrowed partly due to the improving Turkish Lira to TL/Dollar 2.67 from a previous TL/Dollar 2.70, over the same period. In contrast, Brazil’s 5 year CDS quotes expanded weekly from 219-223 bps to 229-231 bps. As for Egypt’s 5Y CDS quotes, it slightly moved from 314-338 bps to 317-336 bps while that of Dubai remained unchanged during the week, at their previous quote of 199-210 bps.

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