Optimism Regarding Presidential Elections and Political Recovery Drove Eurobonds Prices Up

The BLOM Bond Index (BBI), which tracks Lebanese government Eurobonds (excluding coupon payments), rose remarkably over the course of the week and reached 13.47 points on Monday December 9^th, 2024 after the collapse of Bashar Al Assad’s regime in Syria and then declined to end the week with a gain of 22.31 to settle at 12.92 points on December 12^th, 2024. BBI increased by 22.31% this week and more than doubled since year start.

On the political front, Lebanese parliamentary parties increased their meetings in order to succeed in electing a new president in the upcoming scheduled presidential elections on January 9^th, 2025. Cautious optimism is spreading as many observers believe that this might be the best chance for political and economic recovery.

In the U.S., the yield curve shifted upward this week, with five-year, and ten-year yields rising by 11 and 15 bps, respectively, to stand at 4.18% and 4.32% on December 12^th, 2024.

10-year treasury yields increased over the course of the week as several data were released. Treasury yields started the week in green as investors were waiting for the release of inflation on Wednesday and reached 4.24%. Then, it erased some of the gains as US inflation rate released showed a slight increase as per expectations and recorded 2.7% annually in November compared to 2.6% annually in October. Later on, yields continued its rise on Thursday and surpassed 4.28% until the US Department of Labor released its unpleasant figures supporting the Federal Reserve’s anticipated decision to cut rates in next week’s meeting. In details, initial jobless claims, being the number of people claiming unemployment benefits, reversed expectations of falling to 220,000, and rose by 17,000 to record 242,000 on the first week of December. Similarly, continuing jobless claims increased from 1,871,000 to 1,886,000 in the week ending November 30^th, 2024. Moreover, the four-week moving average for initial jobless claims that dismiss week-to-week volatility rose to record to 224.25K in the week ended December 7^th, 2024.

Additionally, factory gate prices in the US rose above the forecasts in November indicating that inflation may stay stubbornly above the Fed’s target next year leaving the expected 100 bps rate cuts next year uncertain. As such, 10-year treasury yields increased to reach 4.32%.

Amid these developments, traders are now pricing in a 96.7% chance of a quarter-point rate cut at the Federal Reserve’s December 18^th meeting, while the likelihood of no change is 3.3%, 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 1,451 and 1,155 bps to record 10,142 and 7,328 bps respectively by the week ending December 12^th, 2024.

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