Bond markets saw a surge of activity in the run-up to the Paris II donors conference on 23 November, following strong indications of political and economic support from the US, France and the International Monetary Fund (IMF) for Lebanon’s attempts to gain foreign assistance for its ongoing reform programme. The Eurobond market enjoyed one of its busiest weeks of the year as foreign investors boosted trading volumes and lifted average prices. However, the contraction of mid-spreads was partly offset by a drop in foreign benchmark yields.
Trading in local treasury bills (t-bills) was also bolstered by a report released by Merrill Lynch in mid-November, which recommended that ‘risk-seeking investors take some exposure to Lebanese bonds’. The investment bank had stopped recommending t-bills more than a year and a half ago. ‘There has been significant demand in both markets, and people are anticipating a drop in interest rates,’ says one local financial analyst. ‘I would say that the action is mostly local, but the reversed outlook from Merrill means there has been significant demand from abroad.’
Following a meeting with Prime Minister Rafiq Hariri in mid-November, Horst Koehler, the managing director of the IMF, welcomed the government’s attempts to address rising levels of public debt, saying they would be ‘positive inputs for the donor meeting’. Finance Minister Fouad Siniora said on 28 October that GCC states had agreed to provide up to $5,000 million in loan guarantees to support the government’s efforts to restructure its estimated $29,000 million public debt.
The government is seeking to borrow $2,000 million from European countries, $2,000 million from Gulf states and a further $1,000 million from Canada, Japan and Malaysia (MEED 1:11:02).