Iraq Bond Selloff Sends Buy Signal to Aberdeen: Chart of the Day

The biggest selloff in Iraq’s bonds in a year is creating a “really good buying opportunity” as the country’s rising oil production bolsters the economy amid growing violence, according to Aberdeen Asset Management Plc.

The CHART OF THE DAY shows that Iraq’s $2.7 billion of notes due in 2028 have gained over the past year even as violence escalated across the country. The bonds tumbled yesterday, sending yields to a one-month high of 6.9 percent, as fighters from a breakaway al-Qaeda group took control of Mosul, Iraq’s second-biggest city.

While the fighting in northern Iraq is undermining confidence in Prime Minister Nouri al-Maliki’s government, there’s no immediate threat to security in the southern provinces that account for the majority of oil reserves, according to political consulting firm Eurasia Group. Iraq is rebuilding its energy industry after decades of war and sanctions, pumping more oil than any member of the Organization of Petroleum Exporting Countries after Saudi Arabia.

“If violence can stay away from the oil region, you’ll probably see a rebound in asset prices,” said Anthony Simond, a London-based analyst at Aberdeen, which manages $13.5 billion in emerging-market debt. “The ability to pay is there, and the willingness to pay is there at the moment.”

Yields on Iraq’s bonds have jumped 0.61 percentage point since reaching a 16-month low on June 9, according to data compiled by Bloomberg. The notes, issued in 2006 to settle creditor claims against the government of Saddam Hussein, have returned 14 percent this year through June 10, topping the 8.5 percent average gain for developing nations.

More than 5,000 civilians have died this year through May, double the number of casualties in the same period of 2013, according to the website of Iraq Body Count, a London-based organization that tracks the death toll.

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