Eurobond prices improve as <br > Cabinet approves draft budget. Interbank rate drops, stock price index sees first rise in eight weeks - Lebanon

Eurobond prices improve as
Cabinet approves draft budget
Interbank rate drops, stock price

index sees first rise in eight weeks

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The cost of insuring exposure to Lebanon's sovereign debt fell on Tuesday while prices of dollar-denominated Eurobonds improved after the Cabinet’s approval of the 2019 draft budget.

Five-year credit default swaps (CDS) dropped 23 basis points (bps) to 847 bps compared with their closing price on Monday, according to Reuters.

The Eurobond issue maturing in November of this year rose more than 0.7 cents in the dollar, while the March 2020 issue gained 0.6 cents.

The impact on the Eurobond market started to materialize last week amid rising bets that the draft budget will see the light of day soon. “The Lebanese Eurobond market attracted a net foreign bid, which resulted in a ten bps decline in the weighted average yield to 10.13 percent,” Bank Audi said in its weekly report.

The bid yield and offer yield on Eurobonds with a coupon rate of 5.45 percent and maturing in November this year were 8.88 percent and 6.75 percent respectively, according to SGBL’s daily report for Tuesday. The yields on Eurobonds with a coupon rate of 6.75 percent and maturing in November 2027 were 10.69 percent and 10.27 percent respectively. The yields were 10.20 percent and 9.89 percent for bonds maturing in the same month in 2035 and whose coupon rate is 7.05 percent.

Besides Eurobonds, the foreign exchange and equity markets continued to recover with the Cabinet’s approval of the draft budget as this paves the way for reducing the national deficit-to-GDP ratio and implementing the reforms pledged at the CEDRE conference, according to the Bank Audi report.

The interbank overnight rate has dropped as demand for foreign currencies continued a downtrend that started in the second week of May when the market began to notice that the Cabinet was drawing near to completing the draft budget.

The banks are asking for less lira liquidity on the interbank market in order to convert it on behalf of their customers as demand for foreign currencies has declined, said Marwan Mikhael Head of Research at Blominvest Bank.

The interbank rate started the second week of May at 55 percent then went down to 15 percent on May 17 and down further to nine percent on May 24. It then rose again to 25 percent on May 27-28.

The Central Bank continued to intervene as a seller of US dollars to meet conversion needs, according to Bank Audi.

“The Beirut Stock Exchange price index saw its first weekly rise in eight weeks, mainly helped by improved sentiment amid bets that the government is embarking upon serious fiscal reforms,” Bank Audi said.
Reported by Shikrallah Nakhoul
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Date Posted: May 28, 2019