Demand for Lebanese Eurobonds eased during the past week partially following the US market and somewhat due to the ongoing Holy month of Ramadan. Accordingly, the BLOM Bond Index (BBI) went down by a weekly 0.09% to 107.11 points. In addition, yields on the 5Y and 10Y Lebanese notes augmented by a weekly 4 basis points (bps) and 1 bp, to 5.22% and 6.06%, respectively. In addition, the BBI was outperformed by the JP Morgan Emerging Markets’ Bond Index, which gained a weekly 0.39% to reach 677 points.
On the US front, demand for US notes fell during the week, even at a faster pace than the Lebanese market. This might be on the back of US consumer spending data in May, which rose 9 times faster than in April, as well as overall prices increasing by 0.2% y-o-y. The strong US economic outlook puts the Fed on track for an interest rate hike by September, keeping investors on a standby mode. Furthermore, the situation between Greece and its creditors has not been alleviated yet, bearing in mind that a deadline for a settlement is on June 30. In hindsight, this European issue is holding back international developed fixed income markets, including the United States’. Consequently, the yields on the 5Y and 10Y benchmark notes increased weekly by 5 bps each to 1.70% and 2.40%, respectively. Accordingly, the spread between the yields on the 5Y and 10Y Lebanese bonds and their US counterpart narrowed by 1 bp and 4 bps to 352 bps and 366 bps, respectively.
Lebanon’s 5Y Credit Default Swaps (CDS) narrowed during the week from 341-365 bps last week, to 336-364 bps on June 25th. In regional economies, 5 year CDS quotes of Turkey also tightened from 228-230 bps in the previous week to 214-218 bps. In contrast, 5Y CDS quotes of Brazil and Dubai broadened weekly from 232-235 bps and 173-193 bps to 257-259 bps and 174-198 bps. Meanwhile, Saudi Arabia’s 5Y CDS quotes maintained last week’s quotes of 58-65 bps.