INTERVIEW-Iraq to issue intl bonds in August

by lonelyintexas Tue 30 Jun 2015, 3:53 pm

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Post n°1

INTERVIEW-Iraq to issue intl bonds in August

by lonelyintexas Tue 30 Jun 2015, 3:53 pm

First topic message reminder :

Jun 30 2015

[size=33]INTERVIEW-Iraq to issue intl bonds in August[/size]

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Iraq's budget deficit has risen to around 12% of GDP, said a central bank official.
The Iraqi government is planning to issue a total of USD 11 billion in domestic and international bonds in the next two months to cover the state budget deficit, the acting central bank governor said.

Ali Al-Allaq told TR Zawya that the government would issue around USD 5 billion in domestic bonds next month and around USD 6 billion in international bonds by the middle of August. He said the government has started talks with potential investors in Turkey for the five-year international bonds.

"The domestic bonds will be repaid to the public in one year after deducting a specific rate that is close in value to the interest rate," said Al-Allaq, without elaborating on interest rates.

The central bank also plans to repurchase government bonds as parts of wider efforts to provide financial liquidity, maintain price stability and support the economy, Al Allaq said. He said the state has allocated IQD 1 trillion over the next five years to support small and medium enterprises.

The sharp drop in crude prices has hit the revenues of the oil producing country. Spending in the current budget stands at around IQD 125 trillion, and the deficit has risen to 12% of gross domestic product, the official said.

Iraqi's Finance Minister Hoshyar Zebari previously told Reuters that the government has started discussions with Citibank and Deutsche Bank for the international bonds issue, but declined to say what maturity and interest rates were being negotiated.

He said the ministry was looking at various methods to fund the budget deficit, including borrowing from state banks and converting some Iraqi bank assets held with the central bank into bonds.

The Economist Intelligence Unit (EIU) said in a June report that despite rising crude production, weaker oil prices would result in an annual average fiscal deficit of 6.9% of GDP in 2015-16, but it expected public finances to return to surplus in 2018.

The Iraqi government has reached an agreement with the International Monetary Fund for a USD 833-million loan program to help Iraq cope with the drop in oil prices as it increases spending on security to combat the threat of the Islamic State militant group, which now controls about one-third of the country.

Al-Allaq said that inflation in the country remains at less than 2% and that the net flow of U.S. dollars into the central bank has also not been affected, he added.

"At the daily auction of the central bank, we sell about USD 150 million, which is more than the USD 75 million [prescribed] in the budget law," said the central bank official. "Foreign reserves currently stand at USD 68 billion, while the dinar monetary supply is IQD 40 trillion."

The central bank has maintained the Iraqi dinar peg to the U.S. dollar through daily currency auctions.

The EIU said that the market rate of the dinar would continue to drift above the central bank auction rate so long as the size of the auctions is restricted. "The CBI could also come under pressure to weaken the dinar to help to ease the fiscal deficit," the report said.

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So since the article talks about them issuing bonds in USD they will be at 1166 just to cover the budget. And not maybe at a different rate.
Thanks
LIT

by weslin3 Wed 01 Jul 2015, 7:13 am

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Post n°11

Re: INTERVIEW-Iraq to issue intl bonds in August

by weslin3 Wed 01 Jul 2015, 7:13 am

It's good to hear from you rocky...

by Lobo Wed 01 Jul 2015, 11:08 am

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Post n°12

Re: INTERVIEW-Iraq to issue intl bonds in August

by Lobo Wed 01 Jul 2015, 11:08 am

It occurred to me this morning that the gov. only talks about the 68 billion in foreign reserves. They don't mention the gold and other wealth that they have to back the dinar. There was an article about a month ago, if I remember correctly, that said Iraq had been buying gold and was "in the Middle East" about the 5th or 6th largest holder of gold. Also, at one point, when the CBI was talking about dropping the "artificial peg" to the USD, that it would go to a basket of currencies and POSSIBLY GOLD, to back the dinar. I am very encouraged that we could see something after Ramadan.

by weslin3 Wed 01 Jul 2015, 11:49 am

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Post n°13

Re: INTERVIEW-Iraq to issue intl bonds in August

by weslin3 Wed 01 Jul 2015, 11:49 am

I like those occurrences Lobo! Now hope they have the same occurring thoughts...

by Lobo Wed 01 Jul 2015, 12:04 pm

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Post n°14

Re: INTERVIEW-Iraq to issue intl bonds in August

by Lobo Wed 01 Jul 2015, 12:04 pm

I hope so, Weslin

yes

by duck2000 Thu 02 Jul 2015, 6:17 am

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Post n°15

Re: INTERVIEW-Iraq to issue intl bonds in August

by duck2000 Thu 02 Jul 2015, 6:17 am

DEFINITION of 'International Bond'

Debt investments that are issued in a country by a non-domestic entity. International bonds are issued in countries outside of the United States, in their native country's currency. They pay interest at specific intervals, and pay the principal amount back to the bond's buyer at maturity.

Read more: [You must be registered and logged in to see this link.]

by weslin3 Thu 02 Jul 2015, 6:44 am

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Post n°16

Re: INTERVIEW-Iraq to issue intl bonds in August

by weslin3 Thu 02 Jul 2015, 6:44 am

This sounds good on the definition of international bonds.

in their native country's currency.

by lonelyintexas Thu 02 Jul 2015, 7:24 am

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Post n°17

Re: INTERVIEW-Iraq to issue intl bonds in August

by lonelyintexas Thu 02 Jul 2015, 7:24 am

Thanks Duck,
LIT

by **wciappetta** Thu 02 Jul 2015, 10:56 am

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Post n°18

Re: INTERVIEW-Iraq to issue intl bonds in August

by wciappetta Thu 02 Jul 2015, 10:56 am

A little more info on foreign bonds...

How Exchange Risk Affects Foreign Bonds

Investors often include foreign or international bonds in their portfolios for two primary reasons – to take advantage of higher interest rates or yields, and to diversify their holdings. However, the higher return expected from investing in foreign bonds is accompanied by increased risk arising from adverse currency fluctuations. Because of the relatively lower levels of [You must be registered and logged in to see this link.] from bonds compared with equities, currency volatility can have a significant impact on bond returns. Investors should therefore be cognizant of exchange risk that comes with foreign bonds, and [You must be registered and logged in to see this link.].

Currency Risk and Foreign Bonds
Currency risk does not arise only from holding a foreign currency bond issued by an overseas entity. It exists any time an investor holds a bond that is denominated in a currency other than the investor’s domestic currency, regardless of whether the issuer is a local institution or a foreign entity.

Multinational companies and [You must be registered and logged in to see this link.] to benefit from lower borrowing costs, and also match their currency inflows and outflows. These bonds may be broadly classified as follows:

Foreign bond: A bond issued by a foreign company or institution in a country other than its own, denominated in the currency of the country where the bond is issued. For example, a British company issuing a U.S. dollar currency bond in the U.S.
Eurobond: A bond issued by a company outside its domestic market, denominated in a currency other than that of the country where the bond is issued. For example, a British company issuing a U.S. dollar currency bond in Japan. “Eurobond” does not refer to bonds issued only in Europe,

but rather is a generic term that applies to any bond issued without a specific jurisdiction. Eurobonds are named after their currency of denomination. For example, Eurodollar bonds refer to USD-denominated Eurobonds, while Euroyen bonds refer to bonds denominated in Japanese yen.
Foreign-pay bond: A bond issued by a local company in its local country that is denominated in a foreign currency. For example, a Canadian dollar-denominated bond issued by IBM in the United States would be a foreign-pay bond.

Currency risk arises from the currency of denomination of the bond and the location of the investor, rather than the domicile of the issuer. A U.S. investor who holds a yen-denominated bond issued by Toyota Motor is obviously exposed to currency risk. But what if the investor also holds a Canadian dollar-denominated bond issued by IBM in the U.S.? Currency risk exists in this case as well, even though IBM is a domestic company. However, if a U.S. investor holds a [You must be registered and logged in to see this link.] or a [You must be registered and logged in to see this link.] issued by Toyota Motor, exchange risk does not exist despite the issuer being a foreign entity.

An Example
A [You must be registered and logged in to see this link.] in which your bond is denominated will lower total returns. Conversely, an appreciation in the currency will further boost returns from holding the bond - the icing on the cake, so to speak.

Consider a U.S. investor who purchased EUR 10,000 face value of a one-year bond, with a 3% annual coupon and trading at par. The euro was flying high at the time, with an exchange rate versus the U.S. dollar of 1.45, i.e. EUR 1 = USD 1.45. As a result, the investor paid $14,500 for the euro-denominated bond. Unfortunately, by the time the bond matured a year later, the euro had fallen to 1.25 against the U.S. dollar. The investor therefore received only $12,500 upon converting the maturity proceeds of the euro-denominated bond. In this case, the currency fluctuation resulted in a $2,000 forex loss.

The investor may have initially purchased the bond because it had a 3% [You must be registered and logged in to see this link.], whereas comparable U.S. bonds of one-year maturity were only yielding 1%. The investor may also have assumed that the exchange rate would stay reasonably stable over the bond's one-year holding period.

In this case, the positive yield differential of 2% offered by the euro bond did not justify the currency risk assumed by the U.S. investor. While the forex loss of $2,000 would be offset to a limited extent by the [You must be registered and logged in to see this link.] of EUR 300 (assuming one interest payment made at maturity), the net loss from this investment still amounts to $1,625 (EUR 300 = USD 375). This equates to a loss of approximately 11.2% on the initial investment of $14,500.

Of course, the euro could as well have gone the other way. If it had appreciated to a level of 1.50 against the U.S. dollar, the gain arising from favorable forex fluctuation would have been $500. Including the coupon payment of EUR 300 or $450, total returns would have amounted to 6.55% on the initial $14,500 investment.

Hedging Currency Risk in Bond Holdings
Many international fund managers hedge currency risk rather than take the chance of returns being decimated by adverse currency fluctuations.

However, hedging itself carries a degree of risk since a cost is attached to it. As the cost of hedging currency risk is largely based on [You must be registered and logged in to see this link.], it can offset a substantial part of the higher interest rate offered by the foreign currency bond, thereby undermining the rationale for investing in such a bond in the first place. As well, depending on the method of hedging employed, the investor may be locked into a rate even if the foreign currency appreciates, thereby incurring an [You must be registered and logged in to see this link.].

In a number of cases, however, hedging may be well worth it either to lock in currency gains or protect against a sliding currency. The most common methods employed to hedge currency risk are currency forwards and futures, or currency options. Each method of hedging has distinct advantages and disadvantages. Currency forwards can be tailored to a specific amount and maturity but lock in a fixed rate, while [You must be registered and logged in to see this link.] but are only available in fixed contract sizes and maturities. Currency options provide more flexibility than forwards and futures but can be quite expensive.

Conclusion
Foreign bonds may offer higher yields than domestic bonds and diversify the portfolio. However, these benefits should be weighed against the risk of loss from unfavorable forex moves, which can have a significant negative impact on total returns from foreign bonds.

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by mochasmom Thu 02 Jul 2015, 11:22 am

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Post n°19

Re: INTERVIEW-Iraq to issue intl bonds in August

by mochasmom Thu 02 Jul 2015, 11:22 am

Thanks everyone, good stuff!

by **jedi17** Thu 02 Jul 2015, 12:07 pm

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Re: INTERVIEW-Iraq to issue intl bonds in August

by jedi17 Thu 02 Jul 2015, 12:07 pm

Foreign reserves currently stand at USD 68 billion, while the dinar monetary supply is IQD 40 trillion."

so the question is Neno....or Quack....or anyone else......is that 40 trillion dinar in the CBIs greedy little hands or is it in the hands of the Iraqi citizens? If it is in the hands of the citizens, then we are in for a little wait....however, putting out a new 50 with a value of 50,000 dinar will help bring in most of the large notes.....and then they will have to put out smaller denoms.....just looking for some thoughts

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INTERVIEW-Iraq to issue intl bonds in August

INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

DEFINITION of 'International Bond'

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Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

Re: INTERVIEW-Iraq to issue intl bonds in August

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