BEIRUT: The spread of Lebanese bonds further widened in the third quarter of this year, suggesting that investors feel Lebanon may be vulnerable to the political and security turmoil in the region, most notably in Syria.

Figures released by CDs and bond pricing firm CMA Datavision show that spreads on five-year credit default swaps (CDS) for Lebanon ended the third quarter of 2011 at 429.7 basis points, widening by 78.7 bps from 351 bps at the end of the second quarter and by 82 bps from 347.7 bps at the end of the first quarter of the year, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

Nassib Ghobril, the head of research at Byblos Bank, told The Daily Star that this could reflect the growing cost of insuring Lebanese sovereign bonds.

“The spread is not too high and this will not affect the appetite of investors who buy the Lebanese bonds. The best example was the success of the government in selling its last issue of Eurobonds,” Ghobril said.

Lebanon’s CDS spread widened during the first and second quarters of 2011 due to the deterioration of political conditions in the country, as well as the turmoil across the Middle East and North Africa.

Lebanon’s five-year CDS spread widened by 28.5 bps in 2010, reflecting market stability last year.

The firm said that Lebanon’s CDS spread widened by just 22.4 percent in the third quarter, compared to the worst performers during the quarter such as Denmark, which posted a widening of 216.2 percent, the Netherlands with 176.1 percent, Italy with 165.3 percent, Austria with 159.8 percent, and Germany with 158.4 percent.

CMA Datavision noted that only Ireland, the United States and Venezuela were better performers than Lebanon in the third quarter, with Ireland being the top performer and posting a tightening of 4.7 percent in spreads, followed by the U.S. with a 3.8 percent widening, and Venezuela with a 21.1 percent widening.

CMA Datavision also indicated that Lebanon ended the third quarter of 2011 with a five-year cumulative probability of default (CPD) of 26.6 percent, deteriorating from 22.2 percent at the end of the second quarter and 21.9 percent at the end of the first quarter of 2011. It said the CPD quantifies the probability of an issuer being unable to honor its debt obligations over a given time period.

It added that the CPD is a function of the market’s recovery level, which varies according to several factors and distance to default. It calculates the CPD using an industry standard model and proprietary credit data.