Leurobonds up 35 percent
due to buying by Goldman

HSBC sees a ‘Change Moment’ behind the rally

Goldman Sachs is again buying Lebanese Eurobonds (Leurobonds). HSBC recently published a report entitled ‘A Change Moment’ indicating that the repurchase of Leurobonds has resumed thanks to the renewed hope for a change allowing to break the impasse in terms of governance and to open the way to reforms, international donations, an agreement with the IMF and the restructuring of the debt.

Since September 27 2024, the prices of Leurobonds jumped from 6.5 cents to 8.75 cents, their highest level since September 2023. The bonds first dipped below 10 cents in June 2022.

The volume of the transactions is low but not disclosed. “A couple of million dollars can create this type of increase. We don’t believe it is in the tens of millions,” said a chairman of a major financial institution.

“The price increase reflects a sentiment among some market participants that the political and reform deadlock may be easing. Both prices and volumes are up, but prices could drop again if optimism fades,” said Marwan Barakat, Group Chief Economist and Head of Research at Bank Audi.

From a technical standpoint, this price surge could benefit local banks that had marked down their Leurobond portfolios to their lowest levels. These banks may now consider the premium over the book value as profit (a partial write-back), and book it as liquidity, which can improve their mandatory ratios.

Aside from Goldman Sachs, foreign owners of Leurobonds include Amundi, Ashmore, BlackRock, BlueBay, Fidelity, HSBC and T-Rowe Price, as well as a group of smaller hedge funds. Together, they hold a blocking stake of more than 25 percent in 40 percent of Lebanon’s various bond series. They had acquired most of their holdings in the Lebanese securities, estimated at $12 billion, at steep discounts, since the beginning of the crisis, starting at 70 percent from redemption, all the way down to 30 percent. The sellers were local banks starved for fresh dollars. This leaves around $19 billion: Central Bank ($5 billion), individuals ($3 billion), and the balance with local banks.