Lebanon Bond Rally Resumes as FinMin Talks Enter Final Phase
- Government formation imminent, lawmaker aligned with PM says
- Political groups negotiate hard to get Cabinet representation
Factional disagreements among lawmakers has delayed the appointment of a finance minister.
Photographer: Joseph Eid/AFP/Getty ImagesLebanon’s defaulted sovereign bonds are rallying again after a three-week stagnation as traders and local political observers say talks to appoint a finance minister have progressed to the final stage.
The country’s dollar notes ranging in maturity from 2026 to 2037 have given investors a combined return of 7.6% this week through Wednesday, taking gains over the past year to 200%, according to data compiled by Bloomberg. That’s the best performance among 70 emerging and frontier nations both this week and since February 2024.
The rebound comes after a mini selloff that saw Lebanon’s bonds sink to the bottom of the EM performance sweepstakes. Factional disagreements among lawmakers delayed the appointment of a finance minister — undermining bets for the formation of a functional government and an eventual debt restructuring. The latest reports from the country, however, say hurdles in the negotiations are being removed and the demands of various religious and political groups that make up the political establishment are being addressed.
“I sense two reasons” for the bonds gaining again, said Guido Chamorro, a senior EM portfolio manager at Pictet Asset Management. “One, expectations that the finance minister post will be filled very soon. Two, Lebanon is only one of two countries left in the entire EM universe left, along with Venezuela, that still trade at levels below 20 cents on the dollar.”
Lebanon has faced an economic crisis since 2019 arising from years of corruption and mismanagement, pushing it to default on $30 billion of international bonds. With poverty deepening and the costs of war mounting, the country’s politicians remained divided on the way ahead, leaving it without a president for 26 months. They also failed to carry out reforms required by the International Monetary Fund, depriving the nation of a $3 billion rescue agreed in 2022.
Money managers had bet on an improved political climate in Lebanon for years, only to see such expectations belied repeatedly and the bonds sinking to as low as 6 cents on the dollar. The start of this year, however, brought a breakthrough. Politicians finally agreed to appoint a president, naming US-backed Joseph Aoun for the post. On his part, Aoun designated Nawaf Salam, president of the International Court of Justice, as prime minister — paving way for the process to appoint a finance minister and a central-bank governor.
It hasn’t been easy since then.
“This duo - Aoun and Salam - has international support, but they need to maintain the local actors relatively satisfied to be successful,” said Karim Emile Bitar, professor of international relations at St Joseph University of Beirut.
Lebanese bonds now trade around 17 cents, their highest level since 2021. The sustained gains are not only the result of domestic political developments but also optimism that chances of peace in the Middle East region have improved, said Soeren Moerch, portfolio manager at Danske Bank, who bought the bonds last year at an average cost of 6.5 cents.
The difficulty in negotiations was always expected and progress was never going to be a straight line, said Moerch, who continues to hold the bonds. He said the return of Donald Trump as the US president has also raised the probability that the US will support measures to make Israel safer — which investors interpret as weakening Hezbollah, the influential paramilitary-cum-political group in Lebanon.
The country is still reeling from the war between Hezbollah and Israel, and the new government faces the challenge of maintaining a fragile ceasefire agreement. The initial 60-day agreement ending late January had to be extended until Feb. 18 to give Israeli troops more time to withdraw, the Trump administration said.
“Less Hezbollah, more democracy,” said Moerch
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