Trump’s Victory and Resilient Labor Market Data Drive US Yields Upwards

The BLOM Bond Index (BBI), which tracks Lebanese government Eurobonds (excluding coupon payments), rose by 0.12% this week to 6.98 points, amid the ongoing Israeli-Hezbollah war.

On the political front, ceasefire talks are still ongoing with no signs of an agreement in the near future as Israel are insisting on adding criteria that the Lebanese political figures are refusing and insisting on applying the United Nations decision 1701 without any additions. Although many American and Israel sources are announcing that a ceasefire agreement might be reached soon, analysts expect that a ceasefire might not be reached before the start of Trump’s presidency.

In the U.S., the yield curve shifted upward this week, with one-year, five-year, and ten-year yields rising by 8, 15, and 12 bps, respectively, to stand at 4.36%, 4.32%, and 4.43% on November 14^th, 2024.

10-year treasury yields increased over the course of the week after several data released in addition to the result of the US presidential elections. Inflation rate released on Wednesday resulted in an increase in yields as it met the anticipated rate of 2.6%. Then, the yields continued its rise as the latest Producer Price Index (PPI) reduced the expectations of rate cut by the Federal Reserve next month as it showed an increase of 0.2% MoM in October 2024 compared to an increase of 0.1% MoM in September 2024. Regarding the data released by US Department of Labor, the number of individuals filing for unemployment benefits in the US dropped by 4,000 to 217,000 on the period ending November 9^th compared to the previous week, the least since May, and well below market forecasts of an increase to 223,000. In addition, continuing jobless claims decreased to 1873K in the week ended November 2^nd 2024 and below expectations of 1880K. Similarly, the four-week moving average for initial jobless claims that dismiss week-to-week volatility dropped to record to 221K in the week ended November 9^th 2024, being the least in six months, compared to previous period’s 227.25K.

Furthermore, on Thursday, Federal Reserve Chairman Jerome Powell stated at a Dallas Regional Chamber event that there might be some flexibility in interest rate cuts as there is no hurry for that amid strong labor market data despite a weaker job growth in October in addition to the continuous movement of inflation toward the annual 2% Fed target.

Finally, the victory of Donald Trump is still affecting the market as traders are expecting an increase in deficit spending under his presidency period.

Amid these developments, traders are now pricing in a 62.6% chance of a quarter-point rate cut at the Federal Reserve’s December 18^th meeting, while the likelihood of no change is 37.4%, according to the CME Group’s FedWatch tool.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable decreased by 5 and 22 bps to record 8,558  and  8,087 bps respectively by the week ending November 14^th, 2024.

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