Ukrainian dollar bonds rallied the most on record after Russia committed to investing $15 billion into the nation’s government debt in a move that will help the eastern European nation avert a default.
The government’s $1 billion of dollar-denominated notes due in June climbed $2.94 to $99.813, sending the yield down 6.42 percentage points to 8.76 percent at 6:37 p.m. in Kiev, according to data compiled by Bloomberg. The hryvnia reversed a decline of as much as 0.4 percent.
Russian President Vladimir Putin agreed with Ukrainian President Viktor Yanukovych to buy the debt this year and in 2014, as the country faces almost $17 billion of debt payments through 2015. Energy company NAK Naftogaz Ukrainy’s notes due September 2014 also advanced after OAO Gazprom, Russia’s natural gas export monopoly, said it would cut the price of fuel it charges Ukraine by about a third.
“It’s like a Christmas present for me, haven’t even been dreaming they would resolve it like that,” Steven Dashevsky, who helps manage the $50 million D&P New World Special Situations Fund, said by phone from London. “This looks like Russia is doing a QE for Ukraine,” he said, referring to quantitative easing measures take by central banks including the Federal Reserve and the Bank of Japan.
The agreement with Russia, while risking riling up anti-government protesters demanding to know what Yanukovych had ceded in return, could help the country shore up plunging foreign reserves. The government quit bailout talks with the International Monetary Fund in April, rejecting the conditions imposed by the Washington-based lender.
The cost to insure Ukraine’s debt against non-payment with five-year credit default swaps fell three basis points, or 0.03 percentage point, to 1,038, according to prices compiled by data provider CMA.
“From the pure credit perspective, the risk of default is considerably lower, at least in the short term,” Regis Chatellier, a London-based strategist at Societe Generale SA, said in e-mailed response to questions. “The gas deal also provides considerable relief not only to the average Ukrainian household, but also to the Ukrainian metal industry.”
Putin agreed to cut the natural gas price it charges Ukraine, an energy transit route between Russia and the European Union, to $268.5 per 1,000 cubic meters. Shares of Gazprom trimmed gains to 0.9 percent in London after earlier climbing as much as 2 percent.
Demonstrators frustrated by Ukraine’s turn away from the EU, whose policies have helped other post-communist countries embrace democracy and foster economic development, have occupied parts of Kiev since Yanukovych chose on Nov. 21 closer ties with Russia over a trade agreement with the 28-member bloc.
The deal with Russia may spur anti-government sentiment as opposition forces in Ukraine favor EU ties, Chatellier said. The country’s CDS remain the most costly to insure in the world after Argentina and Venezuela, according to CDS prices tracked by Bloomberg. The hryvnia was unchanged at 8.2945 percent dollar after earlier weakening as much as 0.4 percent.
“The agreement came at the right time for all stakeholders of Ukraine,” Lutz Roehmeyer, a money manager at Landesbank Berlin Investment, who helps oversee about 10 billion euros of assets, said by e-mail. “Everybody will profit from that, the people in the street, the politicians and in the end, investors as well.”
To contact the reporters on this story: Vladimir Kuznetsov in Moscow at firstname.lastname@example.org; Lyubov Pronina in London at email@example.com; Maria Levitov in London at firstname.lastname@example.org