The Economist reports on more yield reaching in the bond market. We’ve written about the 100-year Argentina bond that was issued without a hitch, but Argentina isn’t the only country where we are seeing historic yield reaching behavior. With rates on high yield bonds offering little more than 5%, some investors apparently see no harm in loading up on Iraqi bonds. Yup, Iraq recently issued a $1 billion bond with an expected yield of 7%, but demand that was six times the available supply ultimately drove the yield on those Iraqi bonds down to 6.75%. Today they yield about 6.3%.
Such eagerness for hard-currency debt from a country still reeling from a civil war shows just how far bond investors will now go to get a decent yield. Oversubscribed issues for risky sovereign bonds have become almost normal. The Iraqi sale came just a week after Greece (whose privately held debt was partly written off in 2012) raised €3bn ($3.5bn) in its first bond sale for three years. In June Argentina was inundated with bids for its 100-year eurobond, as dollar-denominated bonds are known. Sceptics noted that Argentina had defaulted on its debts six times in the previous century, with the most recent such upset in 2014. Egypt, Ivory Coast, Nigeria and Senegal have also placed big eurobond issues this year. None enjoys a credit-rating that approaches investment grade, though the eurobond market is familiar with many of them. Ivory Coast, for instance, issued a bond in 2010 in lieu of unpaid debts. It proceeded to miss an interest payment the following year.
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Jeremy Jones, CFA
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