The Lebanese Eurobonds market witnessed a fall in demand, during the week as positive political talks between the major parties mainly boosted trading activity on the Lebanese Bourse. Lebanon’s Eurobonds market might also be following the cue of the dwindling demand in both US treasuries and European Sovereign bonds markets. Consequently, the BLOM Bond Index (BBI) went down by a weekly 0.56% to 107.28 points. In addition, yields on the 5Y and 10Y Lebanese notes went up by 6 basis points (bps) and 9 bps, since last week, to 5.18% and 6.03%, respectively. Still, the BBI managed to outperform the JP Morgan Emerging Markets’ Bond Index, which lost 1.07% to 679 points over the same period.
On the US front, demand for US notes weakened significantly during the week, even at a faster pace than the Lebanese market. It is quite evident that Mario Draghi’s speech this week stating that people should get used to “periods of higher volatility” had a profound effect on fixed-income markets in Europe as well as the States. Investors are in a sell off mode, illustrated by yields on the long-term US bonds reaching 2.38% on Wednesday, its highest level since November. Additional upward pressures on US treasury yields and German bunds came about from the positive economic data for the month of April, in both camps, swelling investors ‘appetite for riskier assets. Consequently, the yields on the 5Y and 10Y benchmark notes increased weekly by 14 bps and 18 bps to 1.65% and 2.31%, respectively. Accordingly, the spread between the yields on the 5Y and 10Y Lebanese bonds and their US counterpart narrowed by 8 bps and 9 bps to 353 bps and 372 bps, respectively.
Lebanon’s 5Y Credit Default Swaps (CDS) significantly narrowed during the week from 369-395 bps last week, to 347-371 bps, following optimistic expectations of a possible breakthrough after political dialogue took place during the week. In regional economies, 5 year CDS quotes of Saudi Arabia, Dubai and Egypt also tightened from 60-67 bps, 197-208 bps and 333-335 in the previous week to 58-66 bps, 191-204 bps and 298-322 bps respectively. Meanwhile, Turkey’s and Brazil’s 5 year CDS quotes increased from 210-214 bps and 232-235 bps to 214-217 bps and 242-245 bps, respectively.