LONDON (Reuters) - Bombings and strife apart, Iraq is proving an oasis for investors battered by global financial turmoil, Citi argued in a research note on Thursday.
The cost of insuring Iraq's bonds against default has fallen so sharply that they now costs less to insure than Venezuelan debt, said Citi economist David Lubin.
"Judging from the performance of spreads in the market for sovereign credit risk, one could argue that Iraq has become something of a safe haven in recent months," he said.
Oil-exporter Iraq has benefited from an improvement in its foreign-exchange reserves.
Iraqi five-year credit default swaps -- instruments which protect against debt default -- tightened to 520 basis points from around 635 bps at the start of the year.
Similar instruments for Venezuela, whose President Hugo Chavez is leading a wave of takeovers to wrest companies from private and foreign ownership, are currently trading at 611 bps.
Like their developed counterparts, emerging markets have been hit by a deepening in risk aversion in the wake of the credit crunch sparked by U.S. subprime mortgage defaults.
Lubin said chances of a further decline in Iraq risk premium were strong given the country's fiscal discipline but warned that the central government could face challenges from the rising influence of provincial rulers
Tens of thousands of Iraqis and more than 4,000 U.S. troops have died since the U.S-led invasion.
(Reporting by Sebastian Tong)