According to the monthly “High Yield & Emerging Market Profiles” report published by Merrill Lynch, the return on Lebanon’s external debt stood at -14.06% during the month of October 2019, compared to -1.62% in September, with the cumulative return on the external sovereign debt reaching -22.18% by end of October 2019. Said result comes in the light of the massive protests and road closures that engulfed the country since mid-October, leading to the resignation of the government. This poises Lebanon to occupy the last position among 13 MENA countries included in the external debt EM sovereign bond index in terms of total return. Jordan topped the list with a total return of 19.68%, followed by Egypt (18.47%) and Oman (16.59%) only to name a few. 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, Ukraine emerges as the best performer with a sovereign return of 29.55%, while Argentina shows the worst return performance which stood at -37.97%. Lebanon’s excess return reached a negative 29.59% by October 2019, the lowest among surveyed MENA countries, noting that it recorded the highest OAS of 1,865 basis points (bps) in the region and the second highest OAS amongst all emerging economies in the index.

The OAS on Lebanon’s External Sovereign debt came higher than the 1,357 bps level reported in September 2019. The weight assigned to Lebanon in Merrill Lynch’s Emerging Markets’ external debt index dropped to 1.36% in September down from 1.61% in the previous month, as captured in the following analysis: