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 Images

By Omar El Chmouri and Srinivasan Sivabalan

6. Februar 2025 at 08:50 MEZ

Lebanon’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.

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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

“Venezuela ticks both boxes,” he wrote in a note. “With a higher likelihood of a more pragmatic approach toward Venezuela, asset prices are reflecting an increased probability of debt restructuring.

 

Trump Deal With Maduro Sends Venezuela Bonds to Six-Month High

• Sides reached agreement on deportations, prisoner release
• Sovereign notes maturing in 2027 rise above 20 cents

This photo released by Venezuela’s presidential press office shows Venezuelan President Nicolas Maduro, right, shaking hands with Richard Grenell, US President Donald Trump’s special envoy, at Miraflores presidential palace in Caracas, Venezuela, on Jan. 31, 2025. Behind is Jorge Rodriguez, president of the National Assembly.Source: Venezuela’s Presidential Press Office

By Bloomberg News

3. Februar 2025 at 18:01 MEZ

Venezuela bonds jumped after the government reached a deal with the White House, adding to optimism that President Donald Trump’s administration is softening its stance toward the political foe.

Government dollar notes rose across the curve on Monday, with those due in 2027 crossing above 20 cents on the dollar for the first time since July. Venezuela has been in default since 2017 on a debt pile estimated to top $150 billion, including some of the most distressed government bonds in the world.

The recent rally — a jump of 3.5 cents since Trump took office — got a boost after Caracas agreed to release six imprisoned US citizens and to accept the return of undocumented immigrants. The White House Envoy for Special Missions Richard Grenell met with President Nicolas Maduro on Friday to finalize the deal.

Read more: Venezuela to Receive US Deportees After Trump Envoy’s Visit

The agreement represented a “sign of good political faith,” said Bruno Gennari, a strategist in KNG Securities. The possibility of levies on Mexico and Canada could also boost investor sentiment, as Venezuelan oil becomes an alternative energy source.

The decision to pick Marco Rubio, a staunch Maduro critic, as secretary of State triggered fears last year around a return of the “maximum pressure” strategy Trump deployed against Venezuela in his first term. Bond prices retreated as hopes faded for a political deal that would pave the way for an eventual debt restructuring.

That has changed since Trump took office and Grenell quickly opened talks with Caracas, which investors took as a signal of a different approach this time around.

“We did expect that the first decision of the Trump administration would not be to break bridges,” said Francesco Marani, head of trading at Spanish investment firm Auriga Global Investors SV SA.

Trump has continued to call for a democratic change in Venezuela, pointing to Maduro’s fraudulent election victory in July.

However, stemming migration and limiting China’s influence are objectives for the Trump administration in Latin America, said Ricardo Penfold, managing director at Seaport Global.

“Venezuela ticks both boxes,” he wrote in a note. “With a higher likelihood of a more pragmatic approach toward Venezuela, asset prices are reflecting an increased probability of debt restructuring.”