Bahrain Leads Surge in Mideast Sovereign Debt Risk Amid Escalating Unrest

Bahrain led an increase in the cost of insuring Middle Eastern sovereign debt on concern escalating unrest will destabilize the Persian Gulf, where most of the region’s oil is produced.

Credit-default swaps on Bahrain jumped for a fourth day, rising 18.5 basis points to 286, the highest since July 2009, according to CMA. Swaps on Egypt rose to the highest in more than a week as protests continued after last week’s resignation of President Hosni Mubarak.

Pro-democracy protesters in Bahrain, home to the U.S. Navy’s Fifth Fleet, stepped up demands for the government to resign after a security crackdown overnight that left at least three people dead. Egypt’s banks and stock market remain shut with no official date to reopen.

“Protests are becoming more geopolitical,” said Gabriel Sterne, an emerging-market economist at brokerage Exotix Ltd. in London. “The fact that it’s spread to wealthy countries makes it look like it’s more a cry for democracy rather than economic.”

Egypt’s army urged people to return to daily life, saying protests are hurting the economy and threaten to weaken security. Finance Minister Samir Radwan said yesterday that more than two weeks of unrest cost the economy $310 million a day, as tourists shunned the country.

‘Patience Wears Thin’

“Up to now, investors have been rather patient and optimistic for the medium-term outlook for Egypt but the longer the disruption goes on, that patience wears thin,” Sterne said. “From an investor’s perspective, there’s been a disappointing follow up in Egypt with strikes continuing.”

Swaps on Egypt rose 5 basis points to 350, the highest in more than a week, according to CMA. Contracts on Israel increased 3 basis points to 146, Lebanon rose 4 to 351, Dubai added 5 basis points to 422.5, Qatar was 3 higher at 103 and Saudi Arabia was up 4 at 126.

The cost of insuring European corporate debt was little changed. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings were unchanged at 390 basis points, after earlier falling to the lowest since January 2010, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.75 basis point to 96.75. The Markit iTraxx Financial Index of 25 banks and insurers rose 0.5 basis point to 159 and the subordinated index was 5 lower at 269.

A basis point on a credit-default swap protecting 10 million euros ($13.6 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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