Demand for Lebanese Eurobonds Recovered During the Week

Demand for Lebanese Eurobonds recovered this week as the BLOM Bond Index (BBI) went up by a weekly 0.11% to 107.21 points. In addition, yields on the 5Y and 10Y Lebanese notes declined by a weekly 2 basis points (bps) and 3 bps, to 5.18% and 6.05%, respectively.  However, the BBI was outperformed by the JP Morgan Emerging Markets’ Bond Index, which gained a weekly 0.44% to reach 674 points.

 There are two factors that aided international bond markets this week. First, investors were swayed towards safer assets such as the German Bunds whose yields fell this week as Greece is looming ever closer to a Euro exit, bearing in mind that the latest meeting between Greece and its creditors ended in frustration. The second factor is related to the Federal Reserve signaling, on Wednesday, that the impending hike in interest rates will be at a slower pace than previously expected, stating that rates will remain below 3% by December 2017. Consequently, the yields on the 5Y and 10Y benchmark US notes declined weekly by 10 bps and 4 bps to 1.64% and 2.35%, respectively. Accordingly, the spread between the yields on the 5Y and 10Y Lebanese bonds and their US counter-parts broadened by 7 bps and 1 bp to 353 bps and 370 bps, respectively.  

 Lebanon’s 5Y Credit Default Swaps (CDS) narrowed during the week from 343-371 bps last week, to 341-365 bps on June 18th.  In regional economies, 5 year CDS quotes of Dubai and Brazil  also tightened from 188-200 bps and 239-241 bps in the previous week to 173-193 bps and 232-235 bps respectively. Meanwhile, 5Y CDS quotes of Saudi Arabia, Turkey and Egypt maintained last week’s quotes of 58-65 bps, 228-230 bps and 298-322 bps, respectively. 

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