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 10.83% during the month of April, compared to negative 35.16% return in March as the country missed a payment in March and defaulted on its Eurobonds portfolio in April. The cumulative return on the external sovereign debt stood at a negative 66.67% by the end of April 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 2.48%, followed by the U.A.E. (0.39%) and Qatar (-0.08%) 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, South Korea emerges as the best performer with a sovereign return of 7.47%, while Ecuador suffered the worst return performance of -66.93%. Lebanon’s excess return reached a negative 71.71% by April 2020, the lowest among surveyed MENA countries. 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.