On Tuesday a transnational group of terrorists seized Iraq’s second-largest city, Mosul. The army did not resist. Abandoned equipment and millions of dollars left in Mosul’s banks are now at the disposal of the Islamic State of Iraq and the Levant, which calls the government in Baghdad “Safavid”, after a foreign Persian dynasty that once ruled Iraq.
But never mind that. Would you like to take the government’s side for a yield of 6.7 per cent? That is where risk is being priced in Iraq’s US dollar bond due in 2028. This would be after the market had digested ill tidings from Mosul.
Not so sure of the risk-reward there? Investors may prefer to buy into the stability of the regime of President Abdel Fattah al-Sisi, with Egyptian hard-currency bonds that mature in a quarter of a century. These yield just below 7 per cent. How about Belarus? There is a 6.5 per cent yield on bonds due in 2018. Trust that no revolution in Minsk disrupts cash flows before then.