What the Financial Markets Are Telling Us About Iraq
Investors — especially bond investors — don’t like uncertainty. When the perceived level of risk increases, bond prices drop to compensate for the greater chance that the issuer won’t be around to repay the principal when the bonds mature.
It works in the other direction, too. If confidence in the entity that issued the bonds — be it a company or a country — increases, the prices of its bonds will rise.
As Bloomberg recently noted, Iraqi bonds have been doing very well:
Holders of Iraqi bonds are giving President George W. Bush a vote of confidence. The country’s $2.7 billion of 5.8 percent bonds due in 2028 returned 15.2 percent since July, according to JPMorgan Chase & Co. index data. Only Ecuador’s debt gained more, rising 18 percent . . . “We’ve had a shift in sentiment,” said Gorky Urquieta, who oversees $14 billion of emerging-market debt at ING Investment Management in The Hague. ING started buying the securities last month, and is now among the biggest holders along with San Mateo, California-based Franklin Templeton Investments and Baltimore-based T. Rowe Price Group Inc., data compiled by Bloomberg show. “There’s optimism the surge is starting to pay off,” he said.
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I guess trickle-down economics is working in Iraq. Tell the former mixed neighborhoods all is OK.