The price of Lebanese government bonds has surged following Israel’s military action against Lebanon, driven by speculation that Hezbollah’s weakening hopes of a ceasefire could pave the way for more orthodox economic policies, according to KNG Securities.
Bruno Gennari, Emerging Markets Strategist at KNG Securities, said that Hezbollah’s potential loss of influence might allow the Lebanese government to tackle its institutional crisis, a crucial step towards restructuring its sovereign debt.
“There’s been a marked increase in trading volumes, with transactions doubling compared to last week, and rising nearly tenfold over the monthly average,” Gennari explained. The price of the bonds has risen from six cents on the dollar to eight cents.
Gennari noted that the surge in bond prices is being driven by the expectation that Israel’s strikes will weaken Hezbollah, which in turn could lead to a resolution of Lebanon’s defaulted bonds.
“Hezbollah has long been viewed as a significant barrier to market-friendly reforms and debt restructuring efforts in Lebanon,” he said.
However, Gennari warned that the outcome remains highly uncertain. “While some are optimistic that Hezbollah’s weakening could expedite a ceasefire and move Lebanon closer to resolving its debt issues, others fear the conflict could exacerbate the country’s financial instability in the long term.”
Lebanon defaulted on its foreign currency bonds in March 2020, marking the first default in its history.
