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Iraqi Bonds Register Second Weekly Decline as Violence Escalates

June 20 (Bloomberg) -- Iraqi bonds headed for their second weekly drop as the U.S. said it would send military advisers to the OPEC country amid escalating violence and a top cleric called for a new government.

Yields on January 2028 debt added less than one basis point to 7.28 percent at 2:09 p.m. in London and have gained 35 basis this week. The rate has climbed 90 basis points in the past two weeks as militants began taking over parts of the country.

U.S. President Barack Obama said yesterday he was dispatching as many as 300 troops to help the Iraqi army battle the insurgency, which threatens to push Iraq into another civil war. Grand Ayatollah Ali al-Sistani, Iraq’s top Shiite cleric who played a key role in calming sectarian tensions in previous years, today called for the creation of a new “effective” government.

“It beggars belief that the yields on Iraqi bonds are at the levels where they are -- one would expect them to be far higher,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by phone. “Holders of Iraqi debt are not being compensated for the enormous risks.”

Brent crude headed for a second weekly gain as the conflict threatens supply from the second-largest producer in the Organization of Petroleum Exporting Countries.

Insurgents led by the Islamic State in Iraq and the Levant, or ISIL, have seized cities north of Baghdad and engaged in a back-and-forth battle to control the Baiji oil refinery, the nation’s largest.

The Iraq Stock Exchange General Index gained 0.6 percent in the five-day period that ended yesterday, paring this month’s drop to 8.3 percent. Bourse trading runs from Sunday through Thursday.

To contact the reporter on this story: Natasha Doff in London at ndoff@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net Stephen Kirkland, Ash Kumar

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