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No Exit (But March)

21 January 2020 by jbchevrel

Lebanon (LEBAN) CDS reverted tighter to 60% today on the 5y. Things there aren’t going any better, but we have witnessed a slight reversal upward in the very short end of cash. Indeed the $ 6 3/8 Mar 2020s price came up by almost +4 points today. Today Bloomberg reported that according to Oxford Economics, the Lebanese authorities will be reluctant to announce a default on debt payments until a functioning government is formed. For CDS that will have the effect of pushing back a potential restructuring to later this year than the March 2020 point. Additionally, we could get a new government as soon as tonight, a positive for Lebanon risk, although probably not sufficient to revert the recent price action. On that news, the 5y CDS rallied -1.5 on our system, although yesterday’s mark was affected by smaller participation by dealers given that it was a US bank holiday. This move marks a partial reversal from last week move. Last week, the Mar 2020s sold off on reports local lenders have been selling to avoid participating in BDL-initiated voluntary swap. While it doesn’t necessarily matter much for the 5y point, a potential paralysis in Lebanon’s leadership prompting both the BDL and the caretaker PM Hariri to delay any decision on restructuring would have its importance for the short end. As far as how things evolve, we had another violent weekend of protests, President Aoun had appointed former education minister Diab to form a government last month, but progress has been slow.