Lebanese Eurobonds surge amid Israel-Hezbollah war: Investors anticipate political resolution and economic recovery

Report by Lea Fayad, English adaptation by Mariella Succar

Despite Israel's destructive war and escalating tensions impacting Lebanon's economy, Lebanese Eurobonds have surged, showing unexpected improvement over the past two weeks.  

Lebanon's former Prime Minister Hassan Diab offered insight into the development, noting that Lebanon's dollar-denominated Eurobonds, which lost significant value following the country's 2020 default, have recently risen by over 35%.

"In late September, these bonds were valued at around 6.5 cents per dollar, but they climbed to 8.7 cents, the highest in nearly two years," Diab explained.  

The sudden demand is driven by investors and banks wagering on the possibility of a political resolution to the ongoing war that could revitalize Lebanon's struggling economy. 

Optimism is fueled by speculation that Washington is using the current war to push for a faster election of a new Lebanese president, which investors view as a potential turning point for economic recovery.  

One foreign investor told Bloomberg: "We invested based on the idea that Israel's conflict with Hezbollah could mark a turning point, bringing Lebanon back onto a path of prosperity."  

A financial analyst commented, "Global markets see Hezbollah as a key opponent to market-friendly reforms and a major obstacle to restructuring Lebanon's debt."  

However, other analysts caution against excessive optimism, emphasizing that Lebanon's path to recovery remains fraught with risks. 

Bond prices, while improved, are still more than 90% below their pre-crisis value, reflecting the long road ahead for economic stability.