The caretaker Cabinet on Thursday, September 7^th, approved a decision by the country’s financial authorities to replace the Sayrafa currency exchange platform with one based on the international Bloomberg platform. Indeed, acting central bank governor Wassim Mansouri reported that the platform will be through Bloomberg’s own trading platform. Indeed, Sayrafa would be terminated due to concerns about transparency and unsustainability.

In this context, 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), remained almost stable at 7.6 points by the end of the week of September 7^th, 2023. As for the JP Morgan EMBI, it dropped by 0.92% to stand at 791.75 by the week of September 7^th, 2023 compared to 799.07 by August 31, 2023.

US treasury yield curve remained almost steady this week and three months (3M) yield reached the highest figure of 5.53% as of September 7^th, 2023. As such the yield curve is still inverted.

Furthermore, the yield on the five years (5Y) Lebanese Eurobonds added 80 bps to stand at 131.3%, meanwhile the yield on the 10 years (10Y) Lebanese Eurobonds dropped by 120 bps to stand at 90.1% by the week ending September 7, 2023 compared to the previous week.

The Federal Open Market Committee is set to convene on September 19 and 20 to deliberate on whether the current benchmark lending rate is sufficient to curb demand and price rises. However, Lorie Logan, President of the Federal Reserve Bank of Dallas, has suggested that skipping an interest rate hike at the upcoming central bank policy meeting might be appropriate. She also hinted that further rate increases could be necessary to bring inflation back to the 2% target. Over the coming months, a thorough assessment of data and economic outlook may confirm the need for continued rate hikes to address inflationary pressures.

Contrary to earlier expectations of an economic slowdown throughout the year, economic activity is actually on the rise. To maintain low inflation, it’s crucial to maintain a balance between supply and demand. Last year, there was a significant shortage of labor supply.

Additionally, recent data shows a decrease in applications for US unemployment benefits, reaching the lowest level since February. This underscores businesses’ reluctance to lay off workers. Initial unemployment claims fell by 13,000 to 216,000 for the week ending September 2nd, as reported by the Labor Department, surpassing economist forecasts. Continuing claims, indicating the number of people receiving unemployment benefits, also dropped to 1.68 million for the week ending August 26, marking the lowest level since July. While the labor market is gradually softening, it continues to provide crucial support to the economy. Solid hiring and limited layoffs have empowered consumers to sustain spending, fostering optimism that the US can avoid a recession. It’s worth noting that the US unemployment rate increased to 3.8% in August 2023, compared to 3.5% in July.

In turn, the 5Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a rise from 12,627 to 12,692 bps. Meanwhile, the 10Y spread between the yield on Lebanese Eurobonds and their US comparable dropped from 8,721 to 8,583 bps by the week ending September 7, 2023.

 Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank