The Bond market in Lebanon revealed further signs of contraction this week and reached below 7 cents levels. In fact, given the chaos and the acute deterioration of the economic situation in the country, desperate and armed Lebanese had resorted to hold banks hostages in order to retrieve their own blocked money. Nevertheless, the IMF stated that it will send a mission to Lebanon in the coming week in order to accelerate the implementation of economic reforms and move forward with the IMF loan program.

Amid these disruptions, 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), recorded a significant drop of 2.48% weekly to stand at 6.65 points by the week ending September 15, 2022 compared to the week of September 8, 2022. As for the JP Morgan EMBI, it decreased by 0.44% to stand at 754.78 by the end the week of September 15, 2022, compared to 758.13 at the end of the week of September 8, 2022.

Furthermore, the yield on the 5 years (5Y) Lebanese Eurobonds registered an increase of 500 basis points (bps) to stand at 128.1% whereas, the yield on the 10 years (10Y) Lebanese Eurobonds registered a decrease by 25 basis points (bps) to stand at 108.45%, by the week ending September 15, 2022.

In the U.S market this week, the yields on the 5Y and 10Y T-bills increased respectively by 27 bps and 16 bps to stand at 3.66% and 3.45% in the week ending September 15, 2022. Therefore, the yield on 10Y T-bills is lower by 21 bps than the yield on 5Y T-bills, while the yields on 0.5Y and 20Y T-bills reached respectively 3.78% and 3.75%, in addition the yield on the 1Y T-bills reached the highest value of 4%, indicating a more or less straight yield curve.

According to Bloomberg, the U.S inflation reached 8.3% in August 2022, a higher percentage than forecasted of 8%. As a result, it is stipulated that in the fed’s next meeting on September 20 and 21, policy makers intend to keep raising interest rates in order to keep on fighting inflation. Therefore, they will lift the benchmark target rate to either 3.25% or 3.5%, depending if they increase rates by 75 or 100 basis points.

On a different note, US jobless claims fell by 5000 reaching their lowest level since May, to stand at 213,000 according to US Labor department data, an indication for strong labor market and reluctance to fire workers. Jobless claims have been dropping as employers are still trying to fill millions of open positions and retain the workers they already have. However, the trend may reverse course as the Federal Reserve pursues an aggressive path of interest-rate hikes.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 11,971 bps and 10,541 bps to 12,444 bps and 10,500 bps respectively by the week ending September 15, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank