The Ukraine bond rally spurred by Russia’s pledge to provide more cash to the country lasted about one hour, underscoring how deadly street protests in Kiev are overshadowing the government’s push to line up aid.
Ukraine’s $1 billion of notes due in June jumped as much as 1.4 percent at the start of trading yesterday after Russia said it would resume a $15 billion bailout program put on hold last month. The notes then slid throughout most of the day, lifting the yield 77 basis points to record 22.92 percent. The rate rose another 210 basis points today by 12:06 p.m. in Kiev amid escalating street protests that have claimed at least 25 dead since yesterday.
Ukrainian bonds are the worst performers most among emerging markets behind Argentina and Venezuela in 2014 as President Viktor Yanukovych’s regime failed to quell tension with the opposition calling for his ouster. Europe’s riskiest borrower, struggling with foreign reserves at the lowest level since 2006, introduced capital controls this month to try to stem outflows.
“Money from Russia is not a solution,” Dmitri Barinov, a money manager overseeing $2.5 billion of debt at Frankfurt-based Union Investment Privatfonds, said by phone yesterday. “The situation is out of control. I fear there will be more blood.”
Barinov sold his remaining Ukrainian holdings after Standard & Poor’s cut the country’s rating by one level to CCC+ on Jan. 28, seven steps below investment grade. Moody’s Investors Service downgraded Ukraine to Caa2 three days later.
The yield on the 2014 notes stood at 25.03 percent, trading a record 14.2 percentage points higher than the debt due 2023, according to data compiled by Bloomberg. The Ukrainian Equities Index fell 4.2 percent yesterday and another 3.8 percent today.
Ukraine’s credit default swaps erased declines last night while the government’s longer-dated bonds fell the most in three weeks as the government deployed thousands of riot police to surround Independence Square, where protesters have camped out since November. It also closed the subway system and set up checkpoints to limit access to the city of 3 million people. The
As of 6 a.m. local time today, 25 protestors and police had been killed in the fighting, the Health Ministry said on its website. The protests started in November when Yanukovych pulled out of a free-trade deal with the EU, opting instead to pursue closer ties with Russian President Vladimir Putin.
Poland’s Premier Donald Tusk today said Ukraine may be on the brink of a civil war and Poland is ready to accept Ukrainian refugees. Andreas Schockenhoff, deputy chairman of German Chancellor Angela Merkel’s Christian Democratic Union, called for sanctions on those responsible for violence.
Yanukovych agreed to meet today with opposition leaders, parliament Speaker Volodymyr Rybak said. Yanukovych will submit his candidate for premier this week, Rybak said Feb. 17.
The increase in violence damped sentiment that had improved after Russia said it will restart a $15 billion bailout plan by purchasing $2 billion of Ukrainian Eurobonds this week. The program was put on hold last month following the resignation of Mykola Azarov as prime minister.
Russia probably resumed aid to help ensure the nomination of a “Russian-compliant” replacement for Azarov, Tim Ash, chief emerging-market economist at Standard Bank Group Ltd. in London, said by e-mail yesterday. It sends the message to western countries that Russia sees Ukraine “as being clearly in its strategic backyard, and is prepared to put its money where its mouth is,” Ash wrote.
The funds will help Ukraine meet its foreign-currency funding needs and solidify Yanukovych’s power until elections next year, Vadim Khramov, a London-based analyst at Bank of America Corp., wrote in a report yesterday.
The cost of insuring Ukrainian debt against non-payment for five years using credit-default swaps climbed 61 basis points today to 1,259, the highest on a closing basis since July 2009, CMA data show. Three-month non-deliverable forwards for the hryvnia rose to 9.81 per dollar.
Ukraine’s credit ratings “may drop further if the political stalemate remains,” Union Investment’s Barinov said. “The pressure on the hryvnia will only rise, and pretty soon we may see runs on banks.”