Demand for Lebanese Eurobonds Slightly Eased During the Week

Demand for Lebanese Eurobonds lagged during the past week partially due to the ongoing Holy month of Ramadan. Accordingly, the BLOM Bond Index (BBI) went down by a weekly 0.07% to 107.11 points. In addition, yields on the 5Y and 10Y Lebanese notes went up by a weekly 1 basis point (bp) and 2 bps, to 5.20% and 6.08%, respectively. However, the BBI outperformed the JP Morgan Emerging Markets’ Bond Index, which lost a weekly 0.15% to reach 676 points.

On the US front the yield curve is steeping again this week to get back to its normal slope after flattening in the past few weeks. The reason is an improved demand for medium-term US bonds on the back of poor economic data in June, where annual growth fell from 2.3% in May to 2% in June, in which 5Y yields dropped 6 bps to reach 1.64%. Demand for long-term US bonds continued weakening trend since April, with the 10Y bond yield closing the week (Thursday, July 2) at 2.40%. In details, continued problems in Greece (banks closing down during the week) coupled with the perception that inflation is looming, are possibly keeping investors on their toes in the US fixed-income markets. Accordingly, the spread between the yields on the 5Y Lebanese bonds and their US counterpart broadened by 6 bps to 356 bps, while the 10Y yield spread remained at 368 bps. 

Lebanon’s 5Y Credit Default Swaps (CDS) widened from 336-364 bps last week, to 353-378 bps on July 2nd.  In regional economies, 5 year CDS quotes of Turkey also stretched from 214-218 bps in the previous week to 219-222 bps. In contrast, 5Y CDS quotes of Brazil narrowed weekly from 257-259 bps to 252-253 bps, while Saudi Arabia’s and Dubai’s 5Y CDS quotes  maintained last week’s quotes of 58-65 bps and 176-191 bps, respectively. 

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