The free fall in Eurobond prices continues with the return of security concerns

Bank Audi’s weekly report stated:

With the end of the temporary humanitarian truce in the Gaza Strip on Friday morning and fears emerging of the re-ignition of the southern Lebanese border front, and in light of the Council of Ministers postponing discussion of the draft law related to reforming the status of banks and reorganizing them until next week, and with the continuation of international efforts to create a breach in the presidential vacuum file. Extending more than a year, the Lebanese financial markets continued to witness this week stability in the exchange rate of the dollar on the black market, while the stock market recorded declines in prices, and Lebanese Eurobonds continued their free fall, according to the weekly report of Bank Audi. In detail, the dollar exchange rate on the black market remained stable at around 89,000 LBP. Despite the multi-faceted vacuum that Lebanon is witnessing and waiting for a way to be found to avoid the vacancy in the army command center at the beginning of the year 2024. At the stock market level, the price index declined again by 1.7% weekly amid shy trading volumes that were limited to $1.8 million. With regard to the Eurobond market, government debt bond prices continued their free fall to range between 5,500 and 5,625 cents per dollar on Friday, amid the return of security concerns and expectations of very low recovery rates in light of the ongoing political vacancy and the absence of consensus on approving the reforms required to lift the country from… A barrage of catastrophes.

Markets

In the money market: The interest rate decreased from day to day from 40% at the end of the previous week to 15% on Friday for technical reasons related to entitlement to a deposit to the Social Security Fund, while the cost of cash remained in the range of 1%-2%. The latest monetary statistics issued by the Bank of Lebanon for the week ending November 16, 2023 showed that resident bank deposits recorded their first expansion, amounting to 1,601 billion pounds, after four weeks of contractions. This expansion is due to an increase in bank deposits denominated in lira at a value of 1,882 billion liras, amid an increase in demand deposits at a value of 1,949 billion liras and a slight decline in savings deposits in lira at a value of 67 billion liras, while bank deposits denominated in foreign currencies decreased by 281 billion liras per week (equivalent to… 19 million dollars according to the official exchange rate of 15,000 LBP). In this context, the monetary supply in its broad sense (M4) expanded by 939 billion liras per week, in light of the decrease in the volume of cash in circulation by 677 billion liras and a slight increase in the portfolio of treasury bonds subscribed by the non-banking sector by 14 billion liras.

In the Treasury bond market: The preliminary results of the tenders dated November 30, 2023 showed that the Bank of Lebanon allowed banks to subscribe to all of their offers in the six-month category (with a return of 4.00%), the three-year category (with a return of 5.50%), and the seven-year category (with a return of 6.50%). On the other hand, the results of the tenders on November 23, 2023 showed subscriptions of about 506 billion liras, distributed between 32 billion liras in the three-month category (with a return of 3.50%) and 474 billion liras in the one-year category (with a return of 4.50%). In contrast, benefits amounted to approximately 173 billion liras, resulting in a weekly nominal surplus of 333 billion liras.

In the currency market: After the end of the temporary humanitarian truce in Gaza and amid fears of the return of tension to the southern Lebanese border, while the country is immersed in a multi-faceted institutional vacuum, and while the volume of cash circulating outside the Bank of Lebanon continues to shrink by about 6.6 trillion pounds since last July, while reserves continue The Central Bank’s liquidity in foreign currencies has an upward trend in light of its policy of not financing the state with currencies. The parallel market for currency trading continued to witness fluctuation this week in the dollar exchange rate, reaching 89,400 LBP – 89,700 LBP. On Friday, unchanged compared to the previous week.

In the stock market: prices on the Beirut Stock Exchange returned to a declining trend, as evidenced by the decline in the price index by 1.7% weekly. Solidere A shares fell by 3.4% to $67.05, while Solidere B shares rose by 0.8% to $67.55. Byblos Bank ordinary share prices remained stable at 0.70. The Beirut Stock Exchange recorded shy trading this week, as the nominal trading value was limited to $1.8 million compared to $3.1 million the previous week, i.e. a 42% decrease. In this context, it is worth noting that trading volumes on the Beirut Stock Exchange increased by 21.6% annually during the first eleven months of 2023 to reach approximately $440 million, while the capitalization value increased by 24.0% between November 2022 and November 2023. Accordingly, it reached The stock turnover rate, calculated on the basis of annual trading value to market capitalization, was 2.8% in the first eleven months of the year 2023, compared to a turnover rate of 2.9% in the corresponding period of 2022.

Eurobond market: Lebanese Eurobonds continued their free fall this week, as government debt bond prices ranged between 5.500 and 5.625 cents per dollar on Friday, in light of the unprecedented institutional vacuum that Lebanon is suffering under and the absence of political will to implement urgent reforms to extract Lebanon from the barrage. crises and securing the required financial support from the International Monetary Fund. In this context, expectations for recovery rates remained very low. Accordingly, Lebanese Eurobonds have recorded price declines along the yield curve of 0.13 points since the beginning of 2023.