Ukraine Bond Rout Worsens on Bets Political Tussle to Block Aid

  • Yield on 2019 bonds climbs above 11 percent for first time
  • Bonds may fall until parliamentary report next week: Dragon

Ukrainian bonds slid, sending the yield on the nation’s shortest-dated restructured debt above 11 percent for the first time, as a political shakeup raised the likelihood for further delays to an international bailout that’s keeping the country afloat.

The $1.15 billion of bonds maturing in September 2019 dropped 2.22 cents to 90.25 cents on the dollar, pushing the yield up 82 basis points to 11.14 percent by 3:53 p.m. in Kiev. The rate has increased more than 1.5 percentage points since the resignation of a reform-minded economy minister on Wednesday sparked concern the move heralded the start of a political crisis that would impede Ukraine’s ability to implement policies needed under a $17.5 billion International Monetary Fund loan.

“Many investors have realized that the situation with reforms is worse that they originally thought,” said Vitaliy Sivach, a trader at Investment Capital Ukraine in Kiev. “The IMF program could be delayed until we see real progress.”

The selloff in the nation’s shorter-dated debt has been worse than longer maturities, a sign investors are concerned the government disputes may eventually force Ukraine to seek a second restructuring with creditors if aid flows are interrupted. The country’s economy been locked in a recession that deepened in the past two years in the aftermath of Russia’s annexation of Crimea.

‘Drift Weaker’

Ukraine’s parliamentary speaker said Monday consultations will continue this week to find ways out from the “crisis of trust” in the ruling coalition. The results of Ukraine’s anti-graft endeavours, key to the continued flow of financial aid, will be assessed by lawmakers during the week of Feb. 15, when Prime Minister Arseniy Yatsenyuk is scheduled to report to parliament on his cabinet’s performance.

Any interruption in aid threatens to drain the nation’s reserves, which have been rising since the IMF loan was agreed in March. The Washington-based lender has already delayed disbursement of about $3.4 billion in payments due to government wrangling.

The yield on Eurobonds due September 2025 climbed above 10 percent for the first time, jumping 38 basis points on Monday to 10.19 percent.

The market is likely to “drift weaker” until then, according to Fyodor Bagnenko, a managing director for fixed-income trading at Dragon Capital in Kiev.

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