Federal Reserve Cut Rates by 50 bps

The BLOM Bond Index (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobond’s market (excluding coupon payments), decreased marginally throughout the course of the week by 0.1%, to reach 5.44 points by September 19^th, 2024. However, JP Morgan EMBI rose by 1.07% to stand at 916.6 points on September 19^th, 2024 compared to 906.94 points on September 12^th, 2024.

The yield on the five-year (5Y) and the ten year (10Y) Lebanese Eurobonds increased by 60 bps and 40 bps respectively to stand at 109.6% and 106.2% by the week ending September 19^th, 2024  compared to the previous week.

US yield curve shifted up over the course of the week as five and ten years’ yields rose by 2 and 5 bps to stand at 3.49% and 3.73% respectively on September 19^th, 2024 compared to the previous week.

The ten-year US Treasury yield fluctuated over the course of the week after the release of some economic and labor sector data in addition to the Federal Reserves’ rate cut earlier this week.

The yield on ten-year Treasury bond decreased during the beginning of the week and reached its lowest level since May 2023 where it recorded 3.62% as investors betted that the Federal Reserve will be more aggressive in rate cuts and that it will cut rates by 50 bps instead of 25 bps. Later on, the yield increased after the release of retail sales showing that US retail sales increased by 0.1% in August in contrary to the forecasted 0.1% decline. Then, on Wednesday, the Federal Reserve did its first rate cut since 2020 of 50bps that led to an improve in bonds, but then these gains were quickly erased after Fed Chair Powel stated that the Federal Open Market Committee (FOMC) is not in rush to continue loosing monetary policy.

On Thursday, US Labor Department released data regarding the labor market which were decent. In details, US initial jobless claims, being the number of people claiming unemployment benefits, declined by 12,000 from the prior week to reach 219,000 on the period ending September 14^th reaching a 4-month low. Moreover, the continuing jobless claims dropped from 1,843 thousands to 1,829 thousands. Furthermore, the four-week moving average for initial jobless claims that dismiss week-to-week volatility dropped to record 227.5 thousands. Note the unemployment rate increased to 4.2% over the course of 2024.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable increased by 58 and 35 bps to record 10,611 and 10,247 bps respectively by the week ending September 19^th, 2024.

 Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank

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