Iraqi exuberance

26 January 2006 By Taron Wade

Iraq s new sovereign issue traded higher than Argentina this week. That doesn t seem rational. Investors may think there is an implicit US government guarantee, but there are still plenty of risks in Iraq.

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Iraq's sovereign bonds dropped this week to a yield of lower than 9% as they began official trading. Previously the debt was trading at 1112% in the grey – or unofficial – market. The republic announced a few weeks ago that it would issue $2.7bn in bonds to existing creditors as part of a restructuring of the country's debt.

The creditors have given up their claims on the principal and overdue interest on Iraq's defaulted debt and accepted an 80% haircut. This means they received $200m for every $1bn in eligible claims.

The coupon on the bond, arranged by Citigroup and JP Morgan, is 5.8%. It matures in 2028.

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