According to the monthly “High Yield & Emerging Market Profiles” report published by Merrill Lynch, the return on Lebanon’s external debt stood at a negative 4.02% during the month of November 2018, compared to a positive 3.49% in October, with the cumulative return on the external sovereign debt reaching a negative 8.97% by the end of the eleven-month period ended November 2018. This poises Lebanon to occupy the 12^th position among 13 MENA countries included in the external debt EM sovereign bond index in terms of total return. Bahrain topped the list with a total return of 2.76%, followed by Qatar (1.36%), U.A.E. (-0.45%), Iraq (-0.58%), and Kuwait (-0.63%), only to name a few, with crisis-stricken Turkey bottoming the list with a negative return of 9.54%. It is worth highlighting that these returns are not risk-adjusted, which explains the fact that countries offering high sovereign yields have high Option Adjusted Spreads (OAS) as sketched in the table below, lowering as such the risk adjusted returns.

When factoring in all emerging economies in the Merrill Lynch index, however, the Bahamas emerged as the best performer with a sovereign return of 2.77%, while Zambia suffered the worst return performance (-25.26%). Lebanon’s excess return reached a negative 8.23% by November 2018, the second lowest among surveyed MENA countries, noting that it recorded the highest OAS of 824 basis points (bps) in the region and the third highest OAS amongst all emerging economies in the index.

The OAS on Lebanon’s External Sovereign debt came markedly higher than the 698 bps level reported in October 2018 in light of dwindling hopes in the formation of a new government during the covered month. Consequently, the weight assigned to Lebanon in Merrill Lynch’s Emerging Markets’ external debt index dropped to 2.32% in November 2018 down from 2.65% in the previous month, as captured in the following analysis: