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Lebanon Bond Repayment Fails To Reassure Investors

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11/29/2019 | 05:48pm EST

By Matt Wirz

Lebanon's repayment Thursday of a $1.5 billion sovereign bond failed to bolster the prices of its other bonds, reflecting mounting concern that the country is running out of cash to meet its foreign obligations.

Rising political conflict and flight of international capital from Lebanese banks have dramatically increased the risk of a default over the next 12 months, analysts and traders said.

The price of Lebanon's $2.1 billion bond due in 2021 declined to about 56 cents on the dollar Friday from about 58 cents before the bond payment, according to analytics service Advantage Data Inc. The country's $1.2 billion bond due next year was unchanged at around 80 cents on the dollar.

International investors have long invested in Lebanese bonds because they paid higher yields than most countries in the region and because the country could lean on capital from its robust banking system to meet fiscal deficits.

Depositors from Persian Gulf countries like Saudi Arabia have been pulling money out of Lebanon over the past year, while stagnant economic growth has triggered street protests that threaten to overturn the political order.

Limits set by local banks on foreign-currency withdrawals and the recent bond payment failed to stem the selloff in external bond prices this week. Medium-term Lebanese bonds yielded about 11% a year ago and have soared to over 25% this month, according to Advantage Data.

Lebanon had $5 billion to $10 billion available to service foreign debt before Thursday's payment, according to a report by Moody's Investors Service, which downgraded the country to a triple-C credit rating this month. Most of that amount will be depleted by $6.5 billion of foreign-currency debt coming due this year and next, the rating firm said.

The Institute of International Finance in recent weeks called for Lebanon's government to seek financing from the International Monetary Fund. Such a bailout would likely require fiscal reforms and a restructuring of the country's private debt, traders said.

Meanwhile, U.S. government bond yields rose Friday while U.S. stock prices fell, sending mixed signals about prospects for economic growth. The yield of the 10-year Treasury closed at 1.778% Friday, from a close of 1.766% Wednesday, according to Tradeweb. Yields rise as bond prices fall.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was basically flat at 91.26 on Friday from 91.27 Thursday.

Write to Matt Wirz at matthieu.wirz@wsj.com

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