Ukrainian bonds slumped, pushing yields to a six-week high, as Russia threatened to delay an aid package and President Viktor Yanukovych refused to unconditionally pardon protesters.
Yields on dollar-denominated debt due in June surged 127 basis points to 13.25 percent at 2:48 p.m. in Kiev, the highest since Dec. 16 on a closing basis. The cost of insuring the country’s debt with credit-default swaps jumped 50 basis points to 1,004 basis points, Europe’s highest, according to CMA data.
Yanukovych went on sick leave today after he pushed through a law last night requiring activists to leave seized buildings before detained protesters can go free, prolonging a two-month standoff that prompted Premier Mykola Azarov to quit on Jan. 28. Russia, which lent Ukraine $3 billion last month to help it avoid a default, should withhold further aid until Azarov’s government is replaced, President Vladimir Putin said yesterday.
“It is proving too much for President Yanukovych,” Marc Chandler, head of global currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a report to clients today. “After seeing Putin’s carrots, he felt the stick yesterday,” and “Ukraine bonds are being crushed,” he said.
The yield on Ukraine’s dollar debt maturing in April 2023 climbed 35 basis points to 9.93 percent. The hryvnia was little changed at 8.4721 per dollar after touching 8.65 on Jan. 27, the weakest level since September 2009.
Unrest has spread beyond the capital, with activists occupying or blocking access to several ministries and regional-government offices. The opposition says six activists have died, three from gunshot wounds, and 1,000 have been injured in protests triggered by Yanukovych’s snub of a cooperation agreement with the European Union two months ago in favor of closer ties with Russia, its former Soviet neighbor.
The U.S. House of Representatives Foreign Affairs Committee has approved a resolution expressing support for revoking visas for several Ukrainian officials and calling on the President and Congress to consider additional sanctions against those who have authorized or engaged in the use of force against protesters.
Ukraine, a key transit route for Russian natural gas to the EU, is grappling with a record current-account deficit and its third recession since 2008. Putin said two days ago that he would review the $15 billion bailout program if a new Ukrainian government signed the agreement with the EU.
“Russia may have started to consider the repayment risk by Ukraine,” Barbara Nestor, a London-based strategist for emerging markets at Commerzbank AG, wrote in a report today.