The Bond market in Lebanon revealed further signs of contraction this week reaching 6 cents levels. As part of a long-delayed recovery program, Lebanon was moving to abandon its currency peg after more than two decades and gradually implement a new exchange rate of 15,000 LBP per USD along with a new economic reform program. However, the program is not expected to be approved as the government doesn’t bear the burden related to the write off of the Central Bank’s foreign currency obligations to commercial banks.

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 4.71% weekly to stand at 6.07 points by the week ending October 6, 2022 compared to the week of September 29, 2022. As for the JP Morgan EMBI, it increased by 1.2% to stand at 722.72 by the end the week of October 6, 2022, compared to 714.12 at the end of the week of September 29, 2022.

Furthermore, the yield on the 5 years (5Y) and 10 years (10Y) Lebanese Eurobonds registered respectively an increase of 490 and 631 basis points (bps) to stand at 137.2% and 120.06% by the week ending October 6, 2022 compared to the week of September 29, 2022.

In the U.S market this week, the yields on the 5Y and 10Y T-bills, both increased by 7 bps to stand at 4.05% and 3.83% in the week ending October 6, 2022. In fact, the yields on two and three years reached respectively the highest percentages of 4.23% and 4.24%, thus indicating an inverted yield curve and showing further signs of an upcoming recession.

US benchmark bond yields are heading for a 10th week of increases, the longest streak since 1984, as the Fed stays resolute in its fight against inflation. Investors are being swayed between hopes for an end to monetary tightening and concerns over the possibility of a deep recession.

On a different note, according to US Labor department data, US jobless claims increased by 29,000 reaching 219,000 in the first week of October, whereas in the previous week, jobless claims were constantly decreasing, as they reached their lowest level since April. Unsurprisingly, the job market was expected to weaken as the Federal Reserve raised another 75 basis points in their meeting in September. In fact, as monetary policies operate with a lag, unemployment is expected to rise further over the next few months, mainly due to a rise in commercial borrowing costs, thus signaling high concerns on US economy.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an increase from 12,832 bps and 10,999 bps to 13,315 bps and 11,623 bps respectively by the week ending October 6, 2022.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank