Iraqi Bonds Cap Worst Week in Year as Civil War Concern Mounts

Iraqi bonds fell, capping their worst week in a year, as Sunni Islamist fighters extended their advance and a report said a top Shiite cleric urged citizens to fight, stoking concern over escalating sectarian warfare.

Yields on January 2028 debt rose five basis points to 6.93 percent at 6:02 p.m. in London, taking this week’s increase to 55 basis points, the most since the period ended June 21, 2013. Iraq’s army failed to upend extremist movement Islamic State in Iraq and the Levant from areas near Baghdad as fighters entered two northeast towns of Jalulah and Saaiydiyah, Al Jazeera said.

Amid signs Sunni militants are pushing Iraq to another civil war, a representative of Shiite leader Ali Al Sistani called citizens to arms, according to Al-Mada Press. The violence across northern and central Iraq, three years after U.S. troops withdrew following the 2003 invasion, led Iraqi stocks to sink the most this week since at least 2009. President Barack Obama said he’s considering “selective actions” by the U.S. military to help OPEC’s second-biggest oil producer.

“ISIL know they can’t capture Shia territory, but hope to provoke a sectarian war to consolidate their position in Sunni areas as the government strikes back,” Emad Mostaque, a London-based strategist at Noah Capital Markets, said by e-mail today.

The group is besieging a military base in Tikrit, the hometown of former President Saddam Hussein, about 80 miles (130 kilometers) north of Baghdad, Al Arabiya reported.

Oil Surges

Crude headed for its biggest weekly gain this year as ISIL overran positions in Mosul, Iraq’s second-largest city, and concern over supplies mounted. The ISX General Index of Iraqi stocks declined 1.7 percent yesterday, taking the weekly drop to 9.1 percent, the most since Bloomberg started tracking the data.

Iraq, home to the world’s fifth-largest oil reserves, has been rebuilding its energy industry after decades of war and economic sanctions. An estimated 17 percent of the country’s crude reserves are in the north, according to the Energy Information Administration.

Iraqi Oil Minister Abdul Kareem al-Luaibi speculated that U.S. planes may bomb his nation’s north as ISIL militants moved south toward Baghdad. Iraq is forecast to provide about 60 percent of OPEC’s output growth in the rest of this decade, the Paris-based International Energy Agency said.

“Nervousness is reflected much more in commodity markets than Iraq’s own debt market,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail today. “Although yields have risen markedly, the back-up has been relatively muted considering what’s at stake.”

The yield on Iraq’s $2.7 billion bond rose to a six-week high today. Emerging-market equities lost 0.4 percent in the third day of declines, while the Borsa Istanbul 100 Index slumped 1 percent in Turkey, the net oil importer that shares a border with Iraq.

“Iraq is the latest test for market sentiment,” Spiro said. “The jihadist insurgency in Iraq has supplanted the pro-Russian separatist one in eastern Ukraine as the geo-political focal point for market anxiety.”

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