Iraqi Government Bonds Rally

By John Lee.

The yield on Iraqi bonds has fallen more than three times as much as the average Middle Eastern bond, reports Bloomberg.

From the start of June to the end of October, the rate on 5.8 percent dollar-denominated Iraqi government bonds maturing in January 2028 has fallen by 216 basis points to 6.48 percent, compares to a drop of 67 basis points for the average yield on regional debt over the same period.

Liz Martins, senior economist at HSBC Holdings in Dubai, is quoted as saying:

"That is a really positive signal for Iraq’s creditworthiness .... The security environment has not improved. But recent numbers show that while this will clearly hurt the non-oil sector, investor confidence and quality of life in general, it does not have to hinder oil production volumes being ramped up."

Over the same period, the spread between Iraqi sovereign bonds and US Treasuries has narrowed by 281 basis points, from a peak of 757 basis points on 1st June to 476 basis points on 29th October.

The cost of insuring Iraq’s bonds for five years fell 50 basis points from an August 6 peak to 450 basis points ob October 29.

Gabriel Sterne, senior economist in London at Exotix, told Bloomberg:

"Capacity to repay is not an issue ... Investor concern is 95 percent politics and governance."

"Iraq’s bonds will continue to improve and become more and more attractive because the country’s economy is growing fast regardless of the violence", Mudher Saleh, deputy governor of the country’s central bank, said recently.

(Source: Bloomberg)

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