Lebanon bond rout ramps up currency concerns, pressure for fiscal reform | Reuters

Lebanon bond rout ramps up currency concerns, pressure for fiscal reform | Reuters:

Lebanon’s worst bond market shock in a decade has raised doubts about whether the country’s banks are willing and able to continue to bankroll the government, raising pressure on Beirut to step up reforms or risk a destabilizing currency crisis.

In September the cost of insuring Lebanese sovereign debt against default LBGV5YUSAC=MG soared to its highest level since the global financial crisis of 2008, implying a more than 40 percent chance of default in the next five years. Many of the government’s dollar-denominated bonds hit record lows, while yield spreads over U.S. Treasury debt scaled historic peaks.

The panic was triggered partly by a wider selloff in global emerging market debt. But when Lebanon’s international bonds have fallen in the past, local banks could typically be relied upon to buy up the securities. Not so this time.