Iraq Bonds Slump on Mosul Seizure as Stocks Drop Most Since 2012

Iraqi bonds plunged and stocks fell the most in two years after fighters from a breakaway al-Qaeda group took control of Mosul in a move highlighting Prime Minister Nouri al-Maliki’s weakening grip on the country.

The yield on the nation’s $2.7 billion of bonds due in January 2028 climbed 41 basis points to 6.91 percent at 12:13 p.m. in New York, the biggest jump in a year on a closing basis, according to data compiled by Bloomberg. The ISX General Index lost 4.6 percent in Baghdad, the most since June 3, 2012.

Mosul, Iraq’s second-biggest city, is entirely in the hands of the Islamic State in Iraq and the Levant, or ISIL, with no army or police presence remaining, Noureddin Qablan, the vice chairman of Nineveh provincial council, said by phone late yesterday. Tribal gunmen allied to al-Qaeda were close to capturing Baiji, north of Baghdad and home to Iraq’s biggest petroleum refinery, Al-Jazeera television reported today.

“If the bombings and the killings continue it is going to hurt investor sentiment,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by phone today. “We see a lot of downside risks and the price decline will continue as long as there is political unrest, which is probably likely.”

Baiji has a refining capacity of 310,000 barrels a day, according to the Energy Information Administration.

Today’s bond decline adds to a retreat yesterday that increased yields by 22 basis points, or 0.22 percentage point. The bonds have been the best performers in the Middle East and Africa region for the past six months, with 15 percent returns, JPMorgan Chase & Co. indexes show.

Rebuilding Economy

“The market is spooked by what’s going on,” Anthony Simond, an emerging-market analyst at Aberdeen Asset Management Plc, which manages $13.5 billion in emerging-market debt, said by phone on June 11 from London. “People didn’t think the extremists were able to take a major city.”

Iraq issued bonds to settle creditors’ claims against the government of Saddam Hussein in 2006, three years after the U.S. invasion.

The stock exchange opened in 2004. Prices were updated manually on a white board before electronic trading began in 2009. Banks have the largest market value among 74 listed companies, according to the latest data from the bourse.

Stocks fell for a fifth day. About 2 billion shares changed hands today, compared with last week’s average of 3.7 billion shares, data compiled by Bloomberg show.

Iraq, with the world’s fifth-largest oil reserves, has been rebuilding its energy industry after decades of war and economic sanctions. Helped by investors including Royal Dutch Shell Plc, it pumped 3.3 million barrels a day in May, data compiled by Bloomberg show. Saudi Arabia is the only member of the Organization of Petroleum Exporting Countries producing more.

Currency Reserves

The International Monetary Fund forecast economic growth at 5.8 percent this year, up from 3.7 percent in 2013. Foreign-currency reserves rose 33 percent in the fourth quarter of 2013 from a year earlier to $88 billion as oil output surpassed Iran.

West Texas Intermediate crude traded near the highest level in three months earlier today. WTI for July delivery rose as much as 0.4 percent to $104.58 a barrel in electronic trading on the New York Mercantile Exchange, up 23 cents. The contract climbed to $105.06 a barrel yesterday, the highest intraday level since March 3.

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