Business | Property
Iraq bonds deliver more on oil export revenues
Iraq's bonds are delivering the biggest returns in emerging markets as oil export revenue bolsters government finances and violence declines.
- Bloomberg
- Published: 23:53 August 29, 2008
New York: Iraq's bonds are delivering the biggest returns in emerging markets as oil export revenue bolsters government finances and violence declines.
The country's $2.7 billion of 5.8 per cent bonds due 2028 gained 45 per cent since August 2007, according to Merrill Lynch & Co. indexes. Investors demand 4.84 percentage points more in yield to own the debt instead of Treasuries, down from 7.26 percentage points a year ago. The spread is narrower than for notes of Ohio banks National City Corp. and KeyCorp, suggesting Baghdad may be safer for bond investors than Cleveland.
Oil exports will climb as high as $86 billion this year, more than double the $30 billion annual average from 2005 to 2007, helping the country post a $52.3 billion budget surplus, according to the US Government Accounting Office. A reduction in bloodshed has allowed the Bush administration to consider a "general timeline horizon" for troop reductions.
"The main driver" of the rally is oil revenue, said Gunter Heiland, who manages $12 billion in emerging-market debt, including Iraqi bonds, at JPMorgan Asset Management in New York. "The other is implied US support. It's half a commodity story, half a political story."
Yields on the bonds fell to 8.65 per cent from a high of 11.81 per cent in August 2007, according to data compiled by Bloomberg. The price of the securities surged to 73 cents on the dollar from a low of 54 cents a year ago.
"There's still more upside," said Edwin Gutierrez, who manages $5.5 billion in emerging-market debt.
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