According to the monthly “High Yield & Emerging Market Profiles” report published by Merrill Lynch, the return on Lebanon’s external debt stood at a catastrophic -17.55% during the month of November 2019, compared to a negative 14.06% in October, with the cumulative return on the external sovereign debt reaching -35.84% by end of November 2019. Said dismal 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 and subsequently to a rise in the country’s risk premium to historic levels. 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 19.79%, followed by Egypt (19.31%) and Oman (18.03%) 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 28.30%, while Argentina shows the worst return performance which stood at -36.93%. Lebanon’s excess return reached a negative 42.91% by November 2019, the lowest among surveyed MENA countries, noting that it recorded the highest OAS of 2,565 basis points (bps) in the region and the second highest OAS amongst all emerging economies (after Argentina “2,650 bps”)  the index.

The OAS on Lebanon’s External Sovereign debt came substantially higher than the 1,865 bps level reported in October 2019. The weight assigned to Lebanon in Merrill Lynch’s Emerging Markets’ external debt index dropped to 1.06% in November down from 1.36% in the previous month, as captured in the following analysis: