The Lebanese Eurobonds market witnessed a slight downturn this week as shown by the 1.01% drop in the BLOM Bond Index (BBI) to 105.72 points. The JP Morgan Emerging Markets’ Bond Index did not outperform the BBI by much as it slightly gained 0.03% to settle at 667.23 points.
It is worth mentioning that, the cabinet authorized on Thursday the Finance Ministry to swap $1.3 billion Eurobonds that mature in January 2016.
The yield on the Lebanese Eurobonds maturing in 5Y and 10Y surged from last week’s 5.40% and 6.29% to 5.60% and 6.46%, respectively.
In the US, movements in the yields on the US treasuries were not as pronounced as the ones seen on the Lebanese Eurobonds market. The yield on the 5Y US treasuries barely moved from last week’s 1.50% to this week’s 1.49% while the increase in the yield on the 10Y US treasuries from 2.09% to 2.18%. The US treasuries’ yield curve was more skewed towards the long term in anticipation of a potential interest rate hike in the future. Foreign demand for US treasuries has been reported to be frail over the past week during the led auctions which could be due to the emerging economies’ needs to use their foreign reserves at home to fend off capital flight.
Consequently, the spread between the yields on the 5Y Lebanese Eurobonds and their US comparable broadened from 390 bps to 411 bps while the 10Y spread widened from 420 bps to 428 bps.
Lebanon’s 5Y Credit Default Swaps (CDS) narrowed from last week’s 403-443 bps to 384-415 bps this week. The 5Y CDS quotes of Saudi Arabia narrowed from 110-122 bps to 45-55 bps. Saudi Arabia’s credit default swaps surged during the week over low oil prices, a slump on the Saudi bourse and Fitch’s lowering of its outlook for Saudi Arabia’s foreign and local currency issuer default ratings to “negative” from “stable”. However, the Saudi market regained some of its strength later during the week on account of the good performance of blue chip companies such as SABIC. Dubai’s 5Y CDS quote narrowed from 198-213 bps to 175-185 bps,Turkey’s 5Y CDS narrowed from 276-280 bps to 258-262 bps while Brazil’s 5Y CDS quotes broadened from 324-330 bps to 338-343 bps.