Easing Lockdown Measures Outweighed Civic Unrest Gitters: US Treasury Yields Up

The BLOM Bond Index (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market excluding coupon payments, partly recovered from its 2-week slump to stand at 17.34 points by the week ending June 04^th 2020. Meanwhile, the JP Morgan EMBI advanced from last week’s 842.27 to 855.02 points this week.

As such, the yields on the 5 year (5Y) and 10Y Lebanese Eurobonds fell by 420 basis points (bps) and 240 bps, to end the week at 101.00% and 46.4%, respectively. In fact, it is worthy to note that early this week, Lebanon began to partially “normalize” again. More businesses and public institutions were able to open and to operate for longer working hours, compared to the last 3 months of ‘lockdown mode’. Notably, exchangers were back to business this week after pledging to work side-by-side with BDL to help contain the rise of the USD/LBP currency pair by organizing and coordinating the supply of US dollars in the parallel market. Moreover, the easing of covid-19 measures this week also extended the curfew which helped kick some life back into the economy even though consumers’ spending remained cautious given their weakened purchasing power.

In the US, the yields on 5Y and 10Y treasuries grew by 6 and 12 bps, respectively, to end the week at 0.4% and 0.82%. The demand on US treasuries slowed down despite the severe rioting across the USA since the Floyd killing. In fact, higher yields were mainly driven by some upbeat deveopments, with the main factors  of the week detailed below:

• 9M filed for Unemployment benefits this week, slipping below last week’s 2M.
• Easing of lockdown measures across the US signaled to investors a faster economic recovery for the US starting H2 2020.
• Demand this week partially shifted away from US treasuries towards the bonds of some Eurozone economies, like Spain’s and Italy’s, as the ECB announced it will extend its bond-buying until June 2021, noting it totaled €1.35trillion.    

Correspondingly, the 5Y and 10Y spreads between the yields on Lebanese Eurobonds and their US comparables retreated by 426 bps and 252bps, to stand at 10,060 bps and 4,558 bps, respectively, by June 04^th.

 Weekly Change of Lebanese Eurobonds Prices

 Source: BLOMInvest Bank