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), increased slightly throughout the course of the week by 1.03%, to reach 6.25 points by July 18^th, 2024. Meanwhile, JP Morgan EMBI fell by 0.17% to stand at 875.71 points on July 18^th, 2024 compared to 877.2 points on July 11^th, 2024.

The yield on the five-year (5Y) and ten year (10Y) Lebanese Eurobonds dropped respectively by 100 bps and 145 bps to stand at 105.8% and 102.05% by the week ending July 18^h, 2024 compared to the previous week.

US yield curve remained almost constant over the course of the week as one and five years’ yields slightly dropped by 1 and 2 bps to stand at 4.86% and 4.11% respectively. Meanwhile, ten years yield remained constant at 4.2% on July 18^th, 2024 compared to the previous week.

The Federal Reserve increased interest rates above 5% a year ago in order to tackle inflation and cool the labor market and it has succeeded. Indeed, inflation has fallen from 9.1% in June 2022 to an estimated 2.6% now, and within shouting distance of the Fed’s 2% target. Meanwhile, the unemployment rate has risen to 4.1% from 3.6%. However, although data is favorable, Fed Chair Jerome Powell refused to say when, or if, the Fed would cut interest rates. New York Fed President John Williams said he needed more data to start cutting rates and Fed governor Chris Waller merely acknowledged a cut was getting closer. But if the Fed were truly data-dependent and trusted its own forecast, it would be comfortable cutting interest rates now. At a minimum, the option should be actively debated at its meeting in two weeks. A cut does bring risks, but so does waiting.

Officials insist November’s election plays no part in their decision; since regardless of their actions, one party will be upset. In fact, Republican candidate Donald Trump indicated in an interview with Bloomberg that the Fed shouldn’t cut at all between now and the election. Whereas, Democrats will similarly lash out if the Fed doesn’t cut, so they would reap for election purposes any resulting economic benefits.

Right now, odds are the Fed won’t cut in two weeks but will signal it is ready to do so in September. That should keep markets calm. Economists surveyed by The Wall Street Journal on average put the probability of recession in the coming year at 28% — not high, but higher than normal. If that risk becomes reality, even a few months’ delay will have mattered.

US jobless claims increased by 20,000 to 243,000 in the week ending July 13, matching the highest level since August 2023, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 229,000 applications. Continuing claims, a proxy for the number of people receiving unemployment benefits, also rose by 20,000 to 1.87 million in the week ended July 6, the highest since November 2021. These figures confirm a softening labor market.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded a downturn from 10,267 and 9,930 bps to 10,169 and 9,785 bps respectively by the week ending July 18^th, 2024 compared to the previous week.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank

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