A calm Lebanese FX market
FOREIGN EXCHANGE MARKET
With no immediate outcome resulting from the donor countries’ conference held on Thursday, the local FX market was calm. However, the Lebanese pound remained at the upper end of the Central Bank’s LP1, 501-14 intervention band, trading in the interbank market at LP1,513-14.With the approach of parliamentary elections, scheduled for the end of August, and the negative deficit figures published this week no noticeable activity is expected to take place on the local foreign exchange scene, until after the elections, or by the time donor countries convene again, expectedly in October.
TB subscriptions continued their rise for the third consecutive week, reaching their highest level of the year at LP667.6billion ($442.84m) up 14.12percent on the week before. Following the upward trend, maturing TBs rose 19.5percent topping the LP500billion ($331.67million)level. The relatively high level of interest rates currently prevailing, and which subscribers are trying to take advantage from, is pushing debt servicing to sky-high levels, reaching 95percent of total revenues during the first six months of the year.
Following last week’s rebalancing of their portfolio with favors directed towards the short-term TBs, banks shifted back to long maturity papers. The 24-M TB captured 53percent of purchases and that of the 12-M took hold of 28percent.On the other hand, the 3-M TBs’ share increased by 5 percentage points to 9percent while the 6-M TBs’ weight dropped 20 points to 19percent. No demand was registered for LP-denominated Certificates of Deposits as the Central Bank is fulfilling all subscribers’ demand of the higher yielding Treasury Bills.
The market was particularly interested by Parliament’s decision this week to authorize the government to borrow $1billion to compensate people displaced by the war, which could mean that new sovereign bonds are on their way. Meanwhile the usually motionless activity in the Eurobond market quivered slightly as the government expanded the 2009 sovereign bond by $250million,more than double what had been rumored last week. This expansion increases the country’s longest maturity sovereign paper to $650million. However, and as brokers were holding their fingers crossed in hope of increased activity on the eurobonds market, Minister of Finance announcement by the end of the week about dismal budget deficit figures for the first half of 2000 shifted demand away from the 09 bond. This sell-off was probably the result of a revival of fears concerning the possible S&P downgrade of Lebanese debt. Despite the fact that US Treasuries received a tamed Employment Cost Index (ECI), measuring pay and benefits of US workers, which rose one percent in the second quarter compared to first quarter’s 1.4percent, surprising strong report on US Gross Domestic Product (GDP) growing 5.2percent in the April-June period and a surge in durable goods, caused a slip in prices and ignited fears that inflation risks remain. Moreover, Fed’s Chairman congressional testimony on monetary policy revealed little to dislodge market hopes that key short-term interest rates might peak at its August 22nd meeting.