Ukraine Bonds Gain With Currency as Poroshenko Plans Peace Talks

Ukrainian bonds gained for a second day and the currency ended a six-day rout as President Petro Poroshenko prepares to present a cease-fire proposal for the conflict-wracked eastern regions.

The yield on securities maturing in July 2017 dropped 20 basis points to 9.26 percent by 4:36 p.m. in Kiev, building on yesterday’s 72 basis-point decline. The hryvnia strengthened 0.9 percent to 11.8625 per dollar, trimming this quarter’s retreat to 6.3 percent.

Ukraine’s bonds are the worst performing among emerging markets in Europe and Africa since April 1 as turmoil worsened in its eastern regions following Russia’s annexation of Crimea in March. Poroshenko will officially present his peace plan for two eastern regions tomorrow, he said on TV Channel 5. The plan has 14 steps, including a limited cease-fire and an amnesty for pro-Russian separatists who lay down their arms.

The cease-fire plan “is another step toward de-escalation of the conflict,” Vadim Khramov, an economist at Bank of America Corp. in London, said in an e-mailed note today. “But tensions are still high, exacerbated by Russia’s decision to cut off gas supplies.”

OAO Gazprom, Russia’s main natural gas exporter, stopped fuel shipments this week after a payment deadline expired. Ukraine, which secured a two-year $17 billion bailout from the International Monetary Fund in May, is facing almost $14 billion of debt maturities by the end of 2015, according to data compiled by Bloomberg.

NATO chief Anders Fogh Rasmussen condemned Russia for a new buildup of forces during a talk in London today. He said “a few thousand more troops” had massed near its border with Ukraine.

Less Tension

The Micex Index climbed to a four-month high in Moscow today, while the ruble advanced for a second day against the dollar.

Ukrainian bonds maturing in April 2023 also increased, sending the yield down 13 basis points to 8.95 percent. The nation’s dollar bonds have returned 1.4 percent this quarter, the least after Jordan and the Philippines in the Bloomberg USD Emerging Market Sovereign Bond Index.

The European Union will seek further talks with Russia and Ukraine on gas supplies as a deal is needed to avoid damage to all involved in the conflict, EU Energy Commissioner Guenther Oettinger said yesterday without giving a time frame.

“I am quite optimistic in the medium term, as I think a gas agreement will eventually be signed and there may be less tension with Russia,” Regis Chatellier, a London-based emerging-market credit strategist at Societe Generale SA, said in e-mailed comments. “In the short term, I see the situation in eastern Ukraine still very tense and I am not sure the cease-fire will last long.”

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