FOREIGN EXCHANGE MARKET
A quiet mood descended on the local foreign exchange market as investors stay on the sidelines awaiting the outcome of upcoming parliamentary elections. The Lebanese pound did come under some pressure at one point due to a lack of dollar supply, but closed on the Interbank market unchanged from the week before at LP 1,513.75- 14.25.The future course of trading on the local currency will largely depend on any new government’s effectiveness in tackling the budget deficit. Moreover, the grace period that a new government would have before having to take firm steps in this pursuit will be brief.
TB subscriptions fell for the third consecutive week at the August 10 auction, going down 7.9 percent to LP314 billion ($208.3 million), while the amount of maturing bills fell 23.5 percent to LP 249.6 billion ($165.6 million).
As investing in TBs does not seem to be appealing to new investors in the current election climate, banks are virtually the sole players on the market, and even then to a reduced extent. Banks are rolling-over existing bills in addition to investing their LP funds in the only LP instruments of note.
A rebalancing of banks’ portfolios took place this week, with the share of the 24-M TB dropping to 57 percent from 73 percent the week before, while the weight of 12-M TBs rose to 20 percent from 15 percent at the August 3 auction. Short-term TBs saw their share of total subscriptions almost double to 23 percent from 12 percent previously.
Illiquidity was generally the order of the week on the Lebanese Eurobond market. Some demand was witnessed on the sovereign 09 and 05 bonds, but little in the way of actual trades. The normal summer calm was interrupted slightly by reports that the Ministry of Finance will shortly mandate Morgan Stanley Dean Writer to lead-manage a new eurobond issue, to be distinguished by its 20-year maturity, double the term of the previous longest issue. These reports suggest an amount of $500 million for the prospective bond.
U.S. Treasuries basically moved sideways over the week, losing ground initially under fresh corporate supply. A tame consumer price index for July, up 0.2 percent, reinforced general opinion that the Fed will leave rates unchanged in the coming week. Gains were made ahead of and following a $1.5 billion buyback of 30-year bonds, the 11th so far this year. Treasuries ended the week range bound, shrugging-off news of yet another record trade deficit, widening to $30.62 billion in June.