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 35.16% during the month of March 2020, compared to negative 31.32% return in February pursuant to the government’s decision on March 23 to withhold payments on all its foreign currency denominated Eurobonds. The cumulative return on the external sovereign debt stood at a negative 62.63% by the end of March 2020. 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. Kuwait topped the regional list with a total return of negative 3.19%, followed by Qatar (-5.37%) and the U.A.E. (-5.41%) 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, Hong Kong emerges as the best performer with a sovereign return of 0.72%. Lebanon’s excess return reached a negative 36.83% by March 2020, the lowest among surveyed MENA countries, noting that it recorded the highest OAS of 5,990 basis points (bps) amongst all emerging economies. The poor performance of the sovereign debt of all emerging economies is largely attributed to the coronavirus outbreak and its devastating impact on world economies and financial markets

The OAS on Lebanon’s External Sovereign debt came in substantially higher than the 4,694 bps level reported in February 2020. Consequently, the weight assigned to Lebanon in Merrill Lynch’s Emerging Markets’ external debt index dropped to 0.43% in March 2020 down from 0.58% in the previous month, as captured in the following analysis: