Ukraine Bonds Cap Second Weekly Decline as Cease-Fire in Doubt

Ukraine’s Eurobonds and the hryvnia capped a second week of declines as renewed fighting in the east between government forces and insurgents cast doubt on plans to declare a cease-fire.

The yield on dollar notes due in 2023 rose one basis point to 9.05 percent by 4:55 p.m. in Kiev, compared with 8.91 percent on June 13, according to data compiled by Bloomberg. The currency weakened 0.4 percent to 11.9050 per dollar, extending this week’s loss to 0.9 percent.

The yields rose from the lowest level in five months, reached on June 9, as separatists attacked a tank base in the Donetsk region overnight. Clashes yesterday left seven servicemen dead and 30 wounded, with about 200 militants killed near Slovyansk, the Defense Ministry said. NATO yesterday condemned Russia for once again massing soldiers on the border.

Investors should “stay short” on Ukrainian assets as President Petro Poroshenko’s pledges for an imminent cease-fire are “not materializing and the Ukrainian army is engaging in even bigger clashes,” Ivan Tchakarov, chief Russia economist at Citigroup Inc. in Moscow, said in e-mailed comments today. “Things have escalated and that is why yields have risen substantially over the last two weeks.”

Ukraine’s bonds slumped late yesterday on media reports that the country was having talks on re-negotiating its debt. They rebounded as Institute of International Finance economist Lubomir Mitov and the government in Kiev denied the reports.

After Mitov’s statement, traders’ attention shifted back to the security situation, Konstantin Kucherenko, a Kiev-based trader at Dragon Capital, wrote by e-mail today. “All eyes today and on the upcoming weekend will be on Poroshenko’s peace plan and how it will be implemented on the ground,” he said.

The yield on dollar-bonds due July 2017 rose four basis points to 9.51, giving a weekly increase of seven basis points.

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