Lebanese eurobond prices have risen from below 24% to around 29% of par. This reflects, first, the fact that Lebanon is now one of the last sovereigns whose debt still trades at extreme distress levels, following the rebound in Venezuelan bonds. Second, markets appear to believe that the government and Parliament are finally moving toward a more credible resolution of the crisis, covering both public debt and bank deposits. That said, higher prices also raise investor expectations for the restructuring. With thin trading volumes, part of the rally may simply reflect tactical positioning aimed at anchoring negotiations at higher levels. The appropriate response is not to slow reform discussions, which are essential for depositors and economic recovery. Rather, Lebanon needs to shift the debate to fundamentals by clearly defining and publishing its realistic debt-servicing capacity, based on sustainable primary surpluses and taking into account the potential fiscal contribution required to repay deposits.
