Lebanon's eurobond and money markets
Nominal Treasury Bonds (TB) subscriptions as well as the amount of maturing TBs witnessed a U-turn at the August 24 auction—as the former slipped by 15 percent to LP384 billion ($254.62 million)—while the latter dropped 3.23 percent to LP311billion ($206 million).
Investors are partly awaiting the final results of the elections and the emergence of the new government’s composition and policies. Although banks, the major subscriber of TBs, have few alternative uses for their LP funds, policies that would be viewed as unhelpful to the local currency could result in lower purchases.
The different TBs’ share of subscriptions was shuffled on August 24, with the 12-M and 3-M TBs increasing their total share of subscriptions to 17 percent from 9.2 percent for the longer maturity while the shorter-term bill gained 7.88 basis points to 11 percent. On the other hand, the 24- M TB had a slight decrease of 5.29 basis points to 64 percent, while that of the 6-M witnessed a huge drop of 56.43 percent to 8 percent.
The Central Bank sold LP1 billion ($663 million) worth of 45-day certificates of deposits this week, and LP13 billion ($8.62 million) worth of 60-day CDs.
The eurobond market was its usual quiet self, little affected by the first round of voting in the parliamentary elections. The outcome of the elections may have a bearing on the Treasury’s ability to sell its planned new 20-year bond.
Should too much uncertainty over the likely composition of the new government prevail after the second round of voting, then the response from potential investors may be lukewarm at best. Given the term of the bond and their own liquidity considerations, local banks are not expected to take-up as much of the subscription as in previous issues.
As such, the bond is being targeted more towards international investors. Depending on the feedback received from an eight-city U.S. road show in early to mid-September, the government will decide on proceeding with the issuance of the sovereign eurobond. The sale, if carried through, will be lead-managed by Morgan Stanley Dean Witter and Credit Suisse First Boston and might be priced to yield around 550 basis points over 30- year U.S. treasuries.
Soft August U.S. jobs and manufacturing data pushed U.S. treasuries higher and fueled hopes that the world’s strongest economy may be slowing. August non-farm payrolls fell 105,000,below forecasts, and average hourly earnings rose 0.3 percent ,in line with expectations, as the unemployment rate rose to 4.1 percent from 4 percent in July. Moreover, a huge drop in factory orders in July as well as a plunge in the “prices paid” component of the Chicago Purchasing Managers Index, to 58.6 in August from 70 a month before, roused U.S. Treasuries from a sluggish week. — ( Banque du Liban et d'Outre-Mer Sal )
© 2000 Mena Report (www.menareport.com)