Iraqi Bonds

IRAQI BONDS....Last year I blogged about a paper from Michael Greenstone of MIT that looked at Iraqi bond yields and concluded that investors were basically rushing for the doors. After the start of the surge, bond yields shot upward, suggesting that the financial community was largely convinced that the Iraqi government was unstable and likely to default on its commitments. Full details here.

So it's only fair to note a different metric — the cost of insuring Iraqi bonds — that suggests investor confidence is getting stronger:

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.