Ukraine Bonds Extend Gain as Opposition Works Toward Aid Plan

Ukraine’s dollar bonds gained for a second day as the opposition formulated plans to resolve the country’s political crisis and western nations discussed an aid deal for Europe’s riskiest sovereign.

Yields on the dollar-denominated debt due this June fell 17 basis points to 13.37 percent at 2:18 p.m. in Kiev, according to data compiled by Bloomberg. The cost of insuring the country’s debt with credit-default swaps fell 13 basis points to 1,010, according to CMA data. The hryvnia slumped to the weakest since 2009.

Ukraine’s opposition urged lawmakers today to curb the powers of President Viktor Yanukovych, who snubbed a European Union cooperation deal in November in favor of closer ties with Russia. The European Union and the U.S. are considering aid for Ukraine if a new government is formed, U.S. State Department spokeswoman Jen Psaki said yesterday in Washington.

The prospect of western aid is “positive for sentiment toward the country’s external debt as it continues to highlight that Ukraine is able to benefit from the competing interests of the West and Russia,” Vladimir Osakovskiy, a Moscow-based analyst at Bank of America Corp., wrote in an e-mailed report today.

Yanukovych’s turn toward Russia sparked the biggest anti-government rallies since Ukraine gained independence in 1991. By returning to the country’s 2004 constitution, which shifts authority from the president to parliament, the opposition may be more willing to take a share of power, UDAR party leader Vitali Klitschko said today.

‘Unstable’ Situation

Russia agreed in December to lend Ukraine $15 billion and to reduce the price for natural gas deliveries after Yanukovych rejected the EU pact. After buying $3 billion of Ukrainian bonds in December, further aid may be on hold until a new cabinet is formed, President Vladimir Putin said Jan. 29.

“If somehow Yanukovych left the scene, then the Russian aid would come into question, and Ukraine badly needs that,” Viktor Szabo, a money manager who helps oversee $10 billion at Aberdeen Asset Management Plc in London, said by e-mail today. “The situation is unstable.”

The EU’s main offer for Ukraine continues to be the association agreement that Yanukovych refused to sign in November, which would open the bloc to Ukraine’s exports, European Commission President Jose Barroso said yesterday in Brussels.

The hryvnia depreciated 1.4 percent to 8.7750 per dollar, extending its decline this year to 6.1 percent. The yield on Ukraine’s 2023 dollar bonds fell three basis points to 9.84 percent.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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