Iraq Bonds Safer Than Bonds from Some Major US Banks

The risk premium for Iraqi bonds is actually less than for major banks such as National City and Keycorp. Investors are saying its safer to invest money in Iraq than in these banks.

Sometimes, information just makes you give pause.  So it was with this article I read on Bloomberg today.  Believe it or not, the risk premium on Iraqi bonds is actually less than the premium on bonds from major banks such as National City and KeyCorp. 

What does that mean exactly?  Bloomberg writes

"The country's $2.7 billion of 5.8 percent bonds due 2028 gained 45 percent 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."

Iraq if flush with oil revenue.  The country posted a $52.3 billion budget surplus according to the US Government Accounting Office.  Of course, all of this is happening at the same time that the US is pumping in billions per month do defend and rebuild Iraq.

One has to wonder.  It seems that the markets are saying very clearly that our own institutions and banks need the cash far more than the oil-rich Iraqis. 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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