Ukraine’s dollar-denominated bonds rose as government officials from Europe’s riskiest debtor lobbied for foreign economic support after the largest protests in Kiev in almost a decade.
The yield on Ukraine’s dollar notes due in June 2014 declined 19 basis points to 19.43 percent at 3:55 p.m. in New York, paring this week’s increase to 303 basis points, or 3.03 percentage points, according to data compiled by Bloomberg. Five-year credit-default swaps, contracts insuring the nation’s debt against non-payment, held at 1,098 basis points, after jumping 111 basis points in the past two days.
President Viktor Yanukovych is lobbying in China for investments and loans, while delegations will travel to Russia and Belgium, according to Prime Minister Mykola Azarov. Ukraine, which faces more than $15 billion of debt maturing in the next two years, is struggling to exit a third recession since 2008 as foreign reserves languish at the lowest level in seven years.
“While Ukraine’s situation is in permanent flux, we think the current events are favorable as long as they kick the government into action,” Tatha Ghose and Barbara Nestor, London-based analysts at Commerzbank AG, wrote in an e-mailed report today. “We don’t expect default on debt.”
There were no reports of violence in the capital overnight after at least 150 people were hospitalized following clashes between Yanukovych’s forces and protesters since Nov. 30, according to Kiev municipal authorities. Demonstrators are objecting to the president’s decision to suspend talks on an European Union trade pact in favor of closer ties with Russia.
Standard & Poor’s may cut Ukraine’s B- credit rating “if there were to be a further increase in tension or an escalation in violence,” Trevor Cullinan, an analyst at S&P, said by phone today.
“There’s still a short period when Ukraine can potentially raise funds, but the longer they leave it, the more likely that we would be to lower the ratings,” Cullinan said.
Franklin Resources Inc.’s biggest funds ramped up their bet on Ukraine by more than $1.4 billion in the third quarter, adding to the asset manager’s status as the country’s largest international bondholder weeks before street protests deepened the worst rout in developing markets.
Ukraine’s CDS surpassed Cyprus as the costliest in Europe. Only contracts protecting Argentine and Venezuelan notes are more expensive, data compiled by Bloomberg show.
“Our base case remains that very short-dated debt obligations can be met,” Andreas Kolbe, the London-based head of credit research for emerging-markets in Europe, Middle East and Africa at Barclays Plc, said by e-mail today. “But Ukraine’s economic imbalances and currency-reserve pressures are likely to result in continuous pressures on Ukraine credit spreads.”
The hryvnia weakened 0.3 percent to 8.2450 against the dollar today and 0.3 percent per euro to 11.2048. The yield on Ukraine’s dollar notes due in April 2023 fell two basis points to 10.56 percent, compared with a low of 7.33 percent in May, according to data compiled by Bloomberg.
“The current crisis is not necessarily negative for Ukraine’s credit outlook in the medium term,” Tatiana Orlova, London-based economist at Royal Bank of Scotland Group Plc, wrote in an e-mailed report today.
Potential early elections triggered by Yanukovich’s waning popularity may help usher in a government more keen on closer ties with western partners, Orlova said. “This could result in an improvement in Ukraine’s sovereign outlook,” she said.
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