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Bahrain Leads Surge in Mideast Debt Risk as Unrest Escalates

Bahrain Leads Surge in Mideast Debt Risk as Unrest Escalates
Bahraini anti-government protesters take part in a demonstration calling for a regime change at Pearl Square in Manama. Photographer: Joseph Eid/AFP/Getty Images

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 prices at 3 p.m. in London. 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 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 9.5 basis points to 350, the highest in more than a week, according to CMA. Contracts on Israel increased 2 basis points to 145, Lebanon rose 5 to 360, Dubai added 5.5 basis points to 423, Qatar was 3 higher at 102 and Saudi Arabia was up 3 at 125.

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 was down 2 basis points at 388, the lowest since January 2010, according to Markit Group Ltd.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was unchanged at 96 basis points. The Markit iTraxx Financial Index of 25 banks and insurers rose 1 basis point to 159.5 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.

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