Sovereign Credit Rating and Yield to Maturity of Government Eurobonds

Abstract

Since 2019, Lebanon has been going through one of the worse financial, economic and social crises in centuries. The country is facing very high levels of poverty and unemployment, the local currency has lost more than 90% of its value, and, above all, people can no longer withdraw the money they have placed in Lebanese banks. The country, which is highly indebted, declared bankruptcy after the government announced that the state would not be honoring the payments on the Eurobonds it issued. Looking at data since 2016, it was shown that a change in sovereign credit rating opposingly correlates with the yields to maturity of the government-issued Eurobonds in the case of Lebanon. Moreover, this study argues that both the GDP growth rate and the Inflation may positively moderate the previous relationship by strengthening the negative relationship between the sovereign credit rating and the yields to maturity of the Eurobonds.