Ukraine Bonds Drop 2nd Day as Rebels Say Votes Favor Secession

Ukrainian bonds dropped for a second day and the hryvnia depreciated as pro-Russian groups in the country’s east said large majorities voted in favor of secession.

The yield on the government’s dollar-denominated bonds due in July 2017 climbed 14 basis points to 13.71 percent. The hryvnia weakened 0.8 percent to 11.7450 per dollar by 12:48 p.m. in Kiev, taking this year’s retreat to 30 percent, the most among more than 170 currencies monitored by Bloomberg. The Ukrainian Equities Index (UX) fell 1.6 percent to 1,084.63.

While the referendums Donetsk and Luhansk were deemed illegitimate by the government in Kiev and its U.S. and European allies, they heightened concern that Russia may intervene after annexing Crimea in March. The votes coincided with violent clashes between government troops and rebels. Russia “respects” the show of popular will, President Vladimir Putin’s press service said.

The plebiscites represent “one more step in the process of complication that creates a difficult backdrop for Ukraine as a whole,” Simon Quijano-Evans and Tatha Ghose, London-based analysts at Commerzbank AG, wrote in an e-mailed report today.

Russia called on the government in Kiev to engage in dialogue with representatives from Donetsk and Luhansk, according to the press service statement.

The yield on the dollar notes due April 2023 was little changed at 10.2 percent, after jumping 1.06 percentage points this year.

Bank of America Corp. will remain underweight on Ukraine’s debt before the presidential election scheduled for May 25, which may generate further “unexpected after-effects,” according to an e-mailed report today from analysts including Vladimir Osakovskiy in Moscow.

“Further decentralization and some form of federalization of Ukraine is likely,” Bank of America said. “However, we think that the negative news flow of ongoing violence is well priced in by now.”

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Daliah Merzaban, Matthew Brown

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