Iraq update

A loyal MR reader sent me the following from Reuters:

Bombings and strife
apart, Iraq is proving an oasis for investors battered by global financial turmoil, Citi argued in a research note on Thursday.

The cost of insuring country-region Iraq’s
bonds against default has fallen so sharply that they now costs less to insure
than Venezuelan debt, said Citi economist David Lubin.  "Judging from
the performance of spreads in the market for sovereign credit risk, one could
argue that Iraq has become something of a safe haven in recent months," he said.

Oil-exporter Iraq has
benefited from an improvement in its foreign-exchange reserves. Iraqi five-year
credit default swaps — instruments which protect against debt default —
tightened to 520 basis points from around 635 bps at the start of the year. Similar
instruments for Venezuela,
whose President Hugo Chavez is leading a wave of takeovers to wrest companies
from private and foreign ownership, are currently trading at 611 bps. Like
their developed counterparts, emerging markets have been hit by a deepening in
risk aversion in the wake of the credit crunch sparked by U.S. subprime
mortgage defaults.

Lubin said chances of a further decline in Iraq risk premium were strong given
the country’s fiscal discipline but warned that the central government could
face challenges from the rising influence of provincial rulers.

As I interpret the email from my source, he is not personally so bullish on Iraqi reconstruction; rather some people are rushing out of other assets and preferring Iraq for its (relative) safety.  So you needn’t read this in an optimistic light.  Alternatively, you might view this as a bet on the U.S. Presidential race and the rising prospects of the Republicans.


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