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Lebanon’s Eurobond spread above regional average

Byblos Bank headquarters is seen in Beirut. (The Daily Star/Mahmoud Kheir)

BEIRUT: Despite a slight improvement recently, the spread on Lebanese Eurobonds remains the ninth highest in the Eastern Europe, Middle East and Africa region, according to investment bank Merril Lynch.

The spread has dropped slightly this year, as the market reacts to political developments, including the formation of Prime Minister Tammam Salam’s Cabinet on Feb. 15.

“Since the formation of the Cabinet, the spread on Lebanese bonds has improved around 25 basis points,” a banker told The Daily Star. “There are still challenges ahead, but the average is acceptable.”

Merrill Lynch said the spread on Lebanese Eurobonds reached 399 basis points at the end of February, the 20th-highest among emerging markets, Byblos Bank’s Lebanon This Week reported.

“It was wider than the EMEA spread of 293 basis points as well as the emerging markets’ overall spread of 326 basis points at end-February 2014,” the report said.

“ Lebanon has a weight of 3.81 percent on Merrill Lynch’s Sovereign Plus Debt Index, the third highest in the EMEA universe and the eighth highest among emerging economies. Lebanon accounted for 7.4 percent of allocations in the EMEA region.”

Lebanon’s public debt now stands at $63.5 billion, or 141 percent of the country’s GDP.

Rating agencies have warned in outlook reports that Lebanon’s credit rating could be lowered if the deficit-to-GDP ratio continues to raise above the forecast 11 percent in 2014.

Standard & Poor’s has forecast Lebanon’s combined current account and fiscal balance at 12.7 percent of GDP in 2014.

Moody’s and S&P both have maintained negative outlooks for Lebanon’s sovereign debt.

Merrill Lynch said Lebanon’s external debt performance was relatively good compared with some emerging markets.

Lebanon’s external debt posted returns of 2.21 percent in the first two months of 2014, Byblos Bank said, constituting the 19th highest return of the 35 markets in the EMEA region, as well as the 34th highest among the 63 emerging markets included in Merrill Lynch’s Sovereign Plus Debt Index.

“ Lebanon underperformed the EMEA region’s returns of 2.54 percent and the overall emerging markets returns of 2.25 percent, but it outperformed the 0.61 percent returns posted by sovereigns rated ‘BB’ and lower during the covered period,” the report said.

For February, Lebanon’s external debt post slightly lower returns, at 1.27 percent, the 13th-best return in the Middle East and Africa region.

The country outperformed Jordan, while lagging behind Tunisia, Iraq, Egypt and Morocco.

The head of research at Byblos Bank, Nassib Ghobril, said the price of Lebanese Eurobonds in the market remained attractive.

“The return on these bonds shows the performance of the Eurobonds in the markets,” he said.

 
A version of this article appeared in the print edition of The Daily Star on March 19, 2014, on page 5.

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Summary

Despite a slight improvement recently, the spread on Lebanese Eurobonds remains the ninth highest in the Eastern Europe, Middle East and Africa region, according to investment bank Merril Lynch.

Merrill Lynch said the spread on Lebanese Eurobonds reached 399 basis points at the end of February, the 20th-highest among emerging markets, Byblos Bank's Lebanon This Week reported.

Lebanon's public debt now stands at $63.5 billion, or 141 percent of the country's GDP.

Merrill Lynch said Lebanon's external debt performance was relatively good compared with some emerging markets.

Lebanon's external debt posted returns of 2.21 percent in the first two months of 2014, Byblos Bank said, constituting the 19th highest return of the 35 markets in the EMEA region, as well as the 34th highest among the 63 emerging markets included in Merrill Lynch's Sovereign Plus Debt Index.


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