The market’s memory is so short when it comes to Lebanon that a few weeks of government inaction all but wiped out a bond rally fueled by Gulf aid pledges and the end of a nine-month political stalemate.
The brief morale boost is giving way to frustration among investors and creditors as a new cabinet formed in January fails to discuss, let alone act on, promised measures meant to shrink a yawning budget gap and jumpstart growth. The economy is creaking under the strain of public debt, which the World Bank has warned is on “an unsustainable path.”
The market backlash didn’t take long to materialize. Left out of a broader rally in emerging markets, Lebanon’s dollar bonds due 2028 have declined almost daily in the last three weeks, sending the yield to near its highest since Jan. 30, the day before the cabinet was formed.
Lebanon’s debt risk, measured by credit default swaps, has climbed by over 100 basis points since the end of February, staying above 700 basis points during the past two weeks.
“Lebanese bonds are only able to sustain rallies when the news flow continues to be positive,” said Richard Segal, senior analyst at Manulife Asset Management in London. “The trend is still negative, but a positive policy surprise will be taken well by investors.”
Read the full article at Bloomberg: https://bloom.bg/2HHVljI