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« Campaign Finance, Iraqi Style | Main | New Header Graphic »

Bonds. Iraqi Bonds

Powerline's John Hinderaker is undoubtedly correct when he says that it'll be decades before we know if the Iraqi experiment has succeeded. According to this morning's Wall Street Journal, some American money managers are willing to take that bet:

T. Rowe Price Group Inc., based in Baltimore, says about $16 million of its $558 million Emerging Market Bond Fund is invested in the new Iraqi bonds. Standish Mellon Asset Management Co., of Boston, says it has about $2 million in Iraqi bonds, spread out among some of its emerging-market mutual funds. It declined to identify the funds but said they had a total of $400 million in assets.

ING Group and Merrill Lynch & Co. recently showed up on a brokers-only computer network as bidders for the Iraqi bonds, one person with access to the system says. It couldn't be learned whether the firms were interested as buyers for their own accounts or for customers. Merrill and ING said they couldn't comment on interest in Iraq.

A couple of points. Since the investors are few, and most individuals won't touch them, it's hard to get a true market for the bonds just yet. Secondly, their relative stability is probably as much due to the US stake in Iraqi success as in any inherent confidence that Mookie al Sadr is following the market. Finally, everyone's a sucker for oil. Everyone, all the time. Venezuela could nationalize everything tomorrow, and in five years, after having wrecked their economy and driven off improvements, they could open it back up and all would be forgiven.

The one fund that we know is dabbling in the bonds, T. Rowe Price's Emerging Markets Bond Fund, has above-average Lipper and Morningstar ratings, and above-average performance over a long period of time. And it's had the same manager for 12 years, so it's not some new guy desperate to push up returns this quarter or else. (Although it would be interesting to know what happened in 3Q1998; that was a meltdown quarter for foreign bonds - LTCM - but they underperformed their group by 30%.)

Now, the yield on that debt has risen substantially, from 5.8% when issued to 9.5% now, the highest dollar-denominated debt in the world. Still, that's not 1970s Latin American levels, and it indicates a willingness by serious managers to take the bonds seriously.

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