Dec. 7 (Bloomberg)—Holders of Iraqi bonds are giving President George W. Bush a vote of confidence.

The country's $2.7 billion of 5.8 percent bonds due in 2028 returned 15.2 percent since July, according to JPMorgan Chase & Co. index data. Only Ecuador's debt gained more, rising 18 percent. Iraq's securities yield 6.21 percentage points more than Treasuries, the most of any dollar-denominated government debt.

While the war in Iraq has dragged Bush's approval ratings lower, his policies in Iraq have turned around investor opinion on Iraqi debentures. The addition of 28,000 troops in the first half of the year has reduced terrorist attacks in the country by 55 percent, the U.S. embassy in Iraq said on Nov. 18.

"We've had a shift in sentiment," said Gorky Urquieta, who oversees $14 billion of emerging-market debt at ING Investment Management in The Hague. ING started buying the securities last month, and is now among the biggest holders along with San Mateo, California-based Franklin Templeton Investments and Baltimore- based T. Rowe Price Group Inc., data compiled by Bloomberg show. "There's optimism the surge is starting to pay off," he said.

A 46 percent increase this year in the price of crude oil, Iraq's biggest export, has also boosted demand for the debt. Production rose to 2.5 million barrels a day from 2 million in September, Oil Minister Hussain al-Shahristani said last month. Crude reached a record $99.29 a barrel on Nov. 21.

Sunnis, Shiites

Iraq sold bonds to international investors two years ago as part of an agreement by creditors to drop claims on $14 billion of debt dating from the regime of former President Saddam Hussein. The securities are unrated.

The notes began trading at 64 cents on the dollar on Jan. 13, 2006, and slumped to 55 cents in August, pushing the yield to 11.53 percent, according to Bloomberg data. Today, the bonds are back to 64.25 cents to yield 9.95 percent, according to Exotix Ltd., a broker of distressed debt.

Bush increased the number of soldiers in Iraq to 160,000 to gain control of Baghdad and the western province of al-Anbar and quell violence by al-Qaeda, Sunni Muslim insurgents and Shiite Muslim militias. The troop increase helped cut terrorist attacks to the fewest since January 2006, Rear Admiral Gregory Smith said on Nov. 18, according to a transcript posted on the Web site of the U.S. embassy in Iraq.

Violence has also declined because Shiite cleric Moqtada al- Sadr called for his Mahdi Army to cease attacks on other militias and U.S. forces, Colonel Don Farris, who leads a brigade in Iraq, said last month. Civilian deaths have dropped 60 percent in Iraq and 75 percent in Baghdad since June, Smith said.

Poll Results

Forty-eight percent of Americans say the war in Iraq is going "very well" or "fairly well," up from 34 percent in June and the highest since September 2006, according to a survey by the Pew Research Center for the People and the Press. The poll of 1,399 adults was conducted Nov. 20-26 and had a margin of error of plus or minus 3 percentage points.

Bush's overall job-approval rating was 30 percent, while 59 percent said they disapproved of Bush's performance.

Trading in Iraqi bonds has increased, said Amir Zada, assistant director in New York at Exotix.

"I've seen much larger volumes," Zada said. "Blocks of $10 million, and even $30 million to $40 million, have been traded more recently. The average used to be $2 million to $3 million."

The country's yield spreads remain the highest in the world.

'Incredibly Dangerous'

"It's still Iraq, an animal unto itself, an incredibly dangerous country," Zada said.

A suicide bomber today killed at least 15 people and injured several others northeast of Baghdad, Iraqi state television reported.

Iraqi bonds have rallied as emerging-market securities slumped when losses on securities tied to U.S. subprime mortgages caused investors to flee all but the safest government debt. Emerging-market debt spreads widened 56 basis points since July to an average of 2.29 percentage points, according to JPMorgan. A basis point is 0.01 percentage point.

The war is almost the only issue that moves the country's debt prices, said Matthew Ryan, who manages $2.3 billion of emerging-market debt at Massachusetts Financial Services in Boston.

"There's an 800-pound gorilla in the room, the threat of the dissolution of the country," said Ryan, who owns Iraqi bonds. "Bond markets could be doing fine but then a car bomb goes off in the green zone, and the bonds fall."