Higher US Treasury Yields Prompt Emerging Markets Sell-off
U.S. yields have quickly increased during the past few weeks and that has had an effect on investors’ risk appetite towards emerging markets. The BLOM Bond Index (BBI) concluded the past week dropping by 1.97%, to stand at 98.00 points. Moreover, the JP Morgan Emerging Markets’ Bond Index (EMBI) slipped by 1.05% over the week, to close at 782.25 points.
Demand for 5 year (5Y) and 10Y Lebanese Eurobonds fell down during the week as their respective yields rose from 6.77% and 7.85% to 7.23% and 8.30%.
In the USA, the expected rise in government debt issuance due to the revenue shortfall as a result of the massive tax overhaul, coupled with inflation concerns due to rising commodity prices and bets on further rate increases from the Federal Reserve have resulted in a drop in demand of US treasuries.
Accordingly, the yields on the 5Y and 10Y US treasuries climbed from 2.77% and 2.92% to 2.82% and 3.00%, respectively.
In its turn, the 5Y and 10Y spread between the yield on the Lebanese Eurobonds and its US comparable widened from 400 basis points (bps) and 493 bps to 441 bps and 530 bps, respectively.
5 Year Credit Default Swaps, Mid-Prices (in basis points)
| 26/04/2018 | 19/04/2018 | |
| Lebanon | 505 | 465 |
| KSA | 87 | 87 |
| Dubai | 108 | 108 |
| Brazil | 171 | 166 |
| Turkey | 194 | 197 |
Weekly Change of Lebanese Eurobonds Prices
| Prices | Weekly | Yields | Weekly | ||||
| Maturity | Coupon in % | 26/04/2018 | 19/04/2018 | Change | 26/04/2018 | 19/04/2018 | Change bps |
| 20/05/2019 | 6 | 99.88 | 100.25 | -0.37% | 6.11% | 5.75% | 36 |
| 28/11/2019 | 5.45 | 98.8 | 99.38 | -0.58% | 6.25% | 5.86% | 40 |
| 09/03/2020 | 6.375 | 99.63 | 100.38 | -0.75% | 6.58% | 6.15% | 43 |
| 14/04/2020 | 5.8 | 98.5 | 99.25 | -0.76% | 6.62% | 6.21% | 42 |
| 19/06/2020 | 6.15 | 98.88 | 99.75 | -0.87% | 6.71% | 6.27% | 44 |
| 12/04/2021 | 8.25 | 103 | 104.38 | -1.32% | 7.11% | 6.61% | 50 |
| 04/10/2022 | 6.1 | 95.5 | 97.13 | -1.68% | 7.30% | 6.86% | 45 |
| 27/01/2023 | 6 | 94.63 | 96.25 | -1.68% | 7.36% | 6.93% | 42 |
| 22/04/2024 | 6.65 | 95.5 | 97.5 | -2.05% | 7.60% | 7.17% | 43 |
| 04/11/2024 | 6.25 | 92.88 | 95 | -2.23% | 7.66% | 7.22% | 43 |
| 03/12/2024 | 7.00 | 96.25 | 98.5 | -2.28% | 7.73% | 7.29% | 45 |
| 26/02/2025 | 6.20 | 91.75 | 94.13 | -2.53% | 7.78% | 7.30% | 47 |
| 12/06/2025 | 6.25 | 91.63 | 94 | -2.52% | 7.80% | 7.34% | 46 |
| 28/11/2026 | 6.60 | 90.5 | 93 | -2.69% | 8.16% | 7.73% | 43 |
| 23/03/2027 | 6.85 | 91 | 93.63 | -2.81% | 8.30% | 7.85% | 44 |
| 29/11/2027 | 6.75 | 89.88 | 92.5 | -2.83% | 8.30% | 7.88% | 42 |
| 03/11/2028 | 6.65 | 88.5 | 91.13 | -2.89% | 8.31% | 7.91% | 41 |
| 26/02/2030 | 6.65 | 87 | 90 | -3.33% | 8.40% | 7.97% | 44 |
| 22/04/2031 | 7.00 | 89 | 92 | -3.26% | 8.41% | 8.00% | 41 |
| 23/03/2032 | 7.00 | 88.63 | 91.5 | -3.14% | 8.40% | 8.02% | 38 |
| 02/11/2035 | 7.05 | 87.63 | 90.75 | -3.44% | 8.41% | 8.04% | 37 |
| 23/03/2037 | 7.25 | 88.75 | 91.5 | -3.01% | 8.45% | 8.14% | 31 |
