The CMA Datavision raised the insurance rates on Lebanese sovereign bonds and certificates of deposit by 7 percent due to the political deadlock in the country and mounting tension in the region.
“Figures released by CDS and bond pricing firm CMA Datavision show that spreads on five-year credit default swaps (CDS) for Lebanon ended the second quarter of 2012 at 478 basis points, widening by 31.7 bps from 446.3 bps at the end of the first quarter of 2012 and by 12.5 bps from 465.5 bps at the end of the fourth quarter of 2011,” CMA Datavision said in a statement.
“The CMA raised the spread on Lebanese sovereign bonds because they see political uncertainty in addition to the ongoing tensions in Syria,” Nassib Ghobril, the head of economic research at Byblos Bank, told The Daily Star Thursday.
He said these spreads were like an insurance policy on Lebanese bonds.
“This means that the investors are buying insurance on their investments. The demand for these bonds does not mean that they will drop if the spreads increase,” Ghobril explained.
The firm noted that Lebanon’s five-year CDS spreads were the 14th widest among 69 countries in the second quarter.
They were wider than Iraq’s spreads of 435 bps, Romania with 411 bps and Slovenia with 400 bps, and tighter than Italy’s spreads at 480 bps, Hungary with 497 bps and Croatia with 506 bps. It said that Lebanon’s CDS spreads widened by just 7.1 percent, compared to the worst performers during the quarter such as the U.S. with 60.8 percent, Argentina with 49.5 percent, Norway with 39.8 percent, Germany with 36.9 percent and Sweden with 33.4 percent.
“Further, CMA Datavision indicated that Lebanon ended the second quarter of 2012 with a five-year cumulative probability of default of 29.4 percent, increasing from 27.5 percent at the end of the first quarter of 2012 and 27.6 percent at the end of the fourth quarter of 2011,” CMA said.
It said the CPD quantifies the probability of an issuer being unable to honor its debt over a given time period.
It added that the CPD is a function of the market’s recovery level, which varies according to several factors and distance to default. It calculates the CPD using an industry standard model and proprietary credit data.
Lebanon’s CPD end-June shows that Lebanese debt was less risky than 14 other sovereigns such as Italy (34.9 percent), Egypt (35.9 percent), Spain (37.2 percent), Ukraine (45.1 percent), and Cyprus (71.1 percent).