A facetious question, for sure. But consider these two images. Are they compatible?

Tear gas in Bahrain

Price for Bahraini eurobond -- Thomson Reuters Eikon

Price for Bahraini eurobond -- Thomson Reuters Eikon

Bahrain's 2014 eurobond has hardly moved, even as the air in the kingdom has been replaced by tear gas.

As Gabriel Sterne, senior economist at frontier market specialist Exotix, points out, markets seem to be very relaxed about these vivid events.

Prices on the Eurobond maturing in 2014 have fallen just over 3% since late January, hardly a major eruption. That means that spreads over US benchmark yields have increased less than 1/3 of one percentage point (i.e. 31bp) since the one-year trough on January 18th. Spreads now stand at just 150bp above similarly-dated US treasuries. That could be a world record low for a country suffering such civil strife.

He points out that the Bahraini protests are not about food prices, unemployment, corruption, economy, or even money. With per capita GDP at close to $20,000, there is almost nowhere else in the world that is so rich and so undemocratic, except neighbours UAE and Qatar.

Bahrain actually scores very well on global measures of governance (World Bank), corruption (Transparency International), economic flexibility (World Bank and World Economic Forum), Sterne says, adding:

Internationally, the implications could be more pronounced. A calm Bahrain is clearly central to well functioning regional financial markets, and global geopolitics. Clearly it is therefore very important that tensions are reduced quickly. The use of force marks a worrying departure from the "Egyptian way", however, and will be sure to keep investors nervous for the time being.

Analysts at Stratfor take up the theme:

Sectarian tensions in Bahrain bear close watching, as the country is a significant proxy battleground in the broader geopolitical struggle between Saudi Arabia and the United States on one side and Iran on the other.

Bahrain is home to the U.S. 5th Fleet, while for its part, Saudi Arabia fears that a regime turnover to the Shia in Bahrain would encourage the Shiite minority in Saudi Arabia's eastern province to follow suit. Iranian media and STRATFOR Iranian diplomatic sources appear to be making a concerted effort to spread stories of Saudi special operations forces deploying to Bahrain to help crack down on Shiite protesters. Such stories could enable Iran to justify assistance to the Bahraini Shia, particularly to Al Wefaq, Bahrain's main Shiite opposition group, turning the country into a more overt proxy battleground between Saudi Arabia and Iran.

Iran may be attempting to amplify the Sunni-Shiite conflict at a time when the United States is already particularly stressed in the region to boost its negotiating position, but Iran is also facing problems of its own at home.

So let's re-cast that question posed in the headline: Is the eurobond market adequately pricing in that latest street protests? Answer: no.

See also:
Bahrain crisis deepens: reaction round-up
-- FT Tilt
Bahrain: more than just a hub for Gulf banking
-- FT Tilt