According to the monthly “High Yield & Emerging Market Profiles” report published by Merrill Lynch, the return on Lebanon’s external debt stood at 3.67% during the month of December 2018, compared to a negative 4.02% in November, with the cumulative return on the external sovereign debt reaching a negative 5.62% by the end of the year 2018. This poises Lebanon to occupy the 10th 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 4.67%, followed by Qatar (3.61%), Kuwait (1.38%), U.A.E. (1.35%), and Morocco (-0.57%), only to name a few, with Tunisia bottoming the list with a negative return of 7.77%. 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, Venezuela emerged as the best performer with a sovereign return of 29.99%, while Zambia suffered the worst return performance (-24.67%). Lebanon’s excess return reached a negative 6.79% by December 2018, the fourth lowest among surveyed MENA countries, noting that it recorded the highest OAS of 793 basis points (bps) in the region and the fifth highest OAS amongst all emerging economies in the index.

The OAS on Lebanon’s External Sovereign debt came lower than the 824 bps level reported in November 2018. Consequently, the weight assigned to Lebanon in Merrill Lynch’s Emerging Markets’ external debt index increased to 2.37% in December 2018, up from 2.32% in the previous month, as captured in the following analysis: