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Iraqi Bonds Fall to Lowest Since April as Violence Escalates

June 16 (Bloomberg) -- Iraqi government bonds dropped, pushing the yield to the highest in almost two months, as the nation’s military pummeled positions of Islamists who have captured Mosul and other towns in the north.

The yield on the nation’s $2.7 billion of bonds due in January 2028 climbed 26 basis points, or 0.26 of a percentage point, to 7.19 percent at 4:39 p.m. in Baghdad, the highest on a closing basis since April 21, according to data compiled by Bloomberg. The price fell to 88 cents, the data shows. The nation’s ISX General Index of shares lost 1.8 percent, falling for an eighth day.

The army killed more than 279 fighters from the Islamic State in Iraq and the Levant and destroyed 50 of the group’s vehicles within 24 hours, military spokesman Qassim Ata said in a televised news conference yesterday. Prime Minister Nouri al-Maliki’s Shiite Muslim-led government is seeking to reassert control over territory held by the breakaway al-Qaeda group, whose advances put in doubt his rule over a unified Iraq.

The conflict is “worrying” and “having a negative impact on the market,” Sherif Salem, a money manager for Abu Dhabi government-owned Invest AD Asset Management, who oversees a $23m Iraq-focused fund, said by phone today. “It’s a retail dominated market and you tend to get overreaction on both up and down moves driven by sentiment.”

Sectarian strife is pushing OPEC’s second-largest crude producer closer to civil war, three years after the U.S. withdrew its forces from the country. Fighting hasn’t spread to the south, which has 60 percent of the country’s crude reserves, according to the U.S. Energy Information Administration. Iraq pumped 3.3 million barrels of crude a day in May, according to data compiled by Bloomberg.

Secretary of State John Kerry said today the U.S. was open to talks with Iran on the crisis in Iraq if the government in Tehran was willing to play a constructive role.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net; Sarmad Khan in Dubai at skhan170@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net James Doran, Ash Kumar

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