Bloomberg – Iceland may pay the highest yield in six years when it sells as much as 1.5 billion kronur ($19.8 million) of government bonds this week as the central bank raises interest rates and hedge funds roil the nation’s markets.
The yield on Iceland’s 7 percent note due March 2010 soared more than 1.5 percentage points since Fitch Ratings cut its outlook for the government’s debt on Feb. 21. The warning spurred an exodus by investors who had poured money into the nation’s stock, bond and currency markets in the past four years.
“It’s a small country that’s falling victim to foreign investors, including hedge funds,” Peregrine Hood, a trader in Geneva at fixed-income broker Bridport & Cie., said in an interview last week. Bridport told clients to get out of Icelandic debt in November and continues to advise them to avoid the country as inflation picks up, Hood said.
Iceland canceled the last two monthly auctions of notes due 2010 rather than pay the yields that investors demanded. The note yielded 9.87 percent today in Reykjavik, according to Zurcher Kantonalbank ZKB, up from 8.1 percent at the government’s last sale on Jan. 18. The increase suggests the government will pay 17.7 million kronur more in annual interest for each 1 billion kronur it auctions tomorrow.
