Ukrainian bonds suffered the worst selloff on record and stocks dropped as Poland warned its eastern neighbor is on the brink of a civil war after clashes in Kiev killed at least 25 people.
The yield on the government’s $1 billion of notes maturing in June increased 19 percentage points to 42 percent, an all-time high, at 10:18 p.m. in Kiev. The rate on bonds due in 2023 rose 90 basis points to 11.42 percent. Ukraine’s stock index lost 2 percent and the hryvnia, which is managed by the central bank, weakened 1 percent to 8.95 per dollar.
Investors are ditching assets of Europe’s riskiest borrower after President Viktor Yanukovych’s regime yesterday banned protests, vowing to use “all means” necessary to restore order. Currencies across developing Europe retreated along with the hryvnia, with the ruble tumbling to a record and higher yields prompting Russia to cancel its third bond auction in less than a month.
“The violent escalation of the political standoff brings nothing good to external debt, especially in the short term,” Vladimir Osakovskiy, a Moscow-based economist at Bank of America Corp., said in an e-mailed research note today. “In the absence of clarity in politics in the next few months, we see escalating risks for Ukraine to service its debt.”
U.S. and European Union officials condemned the violence, while Poland, among nations calling for sanctions against Ukraine officials, said it had begun to accept refugees. The International Monetary Fund said risks of turmoil in developing nations threaten the global economy.
Ukraine, which is grappling with a record current-account deficit and foreign reserves at the lowest level since 2006, has $17 billion of liabilities coming due, excluding interest, through the end of 2015, data compiled by Bloomberg show. The yield on the 2014 note traded a record 30 percentage points above the yield on the debt maturing in April 2023.
Lawmakers in Ukraine’s Lviv region declared independence of Yanukovych’s government while protesters evicted the appointed governor and seized the local security service’s headquarters. EU foreign ministers will meet tomorrow to weigh “all possible options,” including “restrictive measures against those responsible for repression,” the bloc’s foreign policy chief, Catherine Ashton, said in an e-mailed statement.
“We may be witnessing the first hour of a civil war,” Polish Prime Minister Donald Tusk said today in Warsaw.
Ukraine is a key route for Russian gas and last night’s violence marked the first deadly anti-government protests since the nation became independent of the Soviet Union in 1991.
Russia’s benchmark Micex Index lost 1.2 percent while the ruble fell 0.9 percent to 41.8124 against the central bank’s target basket of dollars and euros. The government’s 2028 bond yield increased 18 basis points to a record 8.62 percent. Currencies in Poland, Hungary, Romania and Turkey weakened at least 0.5 percent against the euro.
The Russian government said two days ago it would resume a $15 billion bailout program put on hold last month, with plans to purchase $2 billion of Ukrainian Eurobonds this week. That announcement helped spur a brief bond rally yesterday, before the securities erased gains with the escalation in violence.
Demonstrations started in November when Yanukovych pulled out of a free-trade agreement with the EU, opting instead to pursue closer ties with Russian President Vladimir Putin, who opposed the EU deal.
Three-month non-deliverable forwards on the hryvnia increased 2.8 percent to 9.9180 per dollar, reflecting bets for a 9.8 percent depreciation in the period, according to data compiled by Bloomberg.
“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.”