The Lebanese Eurobonds market witnessed a hike in demand, for the past few weeks, all along the yield curve. Foreign demand on short-term maturities following the selloff of European bonds and the decline in US yields, helped boost the local bond market, in which domestic investors shifted their demand to medium and long-term maturities. There is no doubt that the stable security situation and the positive momentum of budget discussions had their positive impact on demand. Accordingly, the BLOM Bond Index (BBI) augmented by a weekly 0.30% to 107.89 points. In addition, yields on the 5Y and 10Y Lebanese notes declined 8 basis points (bps) and 6 bps, since the last week, to 5.12% and 5.94%, respectively. The BBI also managed to outperform the JP Morgan Emerging Markets’ Bond Index, which lost 0.44% to 686 points over the same period.
Demand for US notes slightly improved during the week despite Janet Yellen, the Fed Chair, exclaiming that they will most probably hike interest rates before the turn of the year, but definitely not in June. The Fed’s decision mainly rested from April’s inflation rate rising faster than economists expected. The progression in the US bond could have been attributed to the 6.24% decline in international oil prices during the week, as a result of the OPEC cartel bumping up production to maintain market share. Furthermore, lenders might be shifting from the European bond market to the US treasuries, due to concerns regarding Athen’s ability to strike a deal regarding their debt by Sunday. Consequently, the yields on the 5Y and 10Y benchmark notes down ticked weekly by 2 bps and 6 bps to 1.51% and 2.13%, respectively. Accordingly, the spread between the yields on the 10Y Lebanese bonds and their US counterpart steadied at 381 bps while that of the 5Y tightened by 6 bps to 361bps.
Lebanese 5Y Credit Default Swaps (CDS) slightly drifted during the week from 370-395 bps to 369-395 bps. In regional economies, 5 year CDS quotes of Saudi Arabia and Dubai tightened from 62-68 bps and 197-208 bps in the previous week to 60-67 bps and 194-205 bps, respectively. In contrast, Turkey’s and Brazil’s 5Y CDS quotes broadened from 204-207 bps and 218-221 bps to respective quotes of 210-214 bps and 232-235 bps. Meanwhile, Egypt’s 5Y quotes remained at their previous level of 331-335 bps, respectively.