Ukraine’s 2014 Bond Yield Jumps to Record on Political StalemateAndras Gergely
Yields on Ukraine’s dollar bonds jumped to a record and the hryvnia slumped as politicians struggled to break a deadlock that stands in the way of the country receiving aid, either from Russia or the West.
The rate on the note due in June rose 147 basis points, or 1.47 percentage point, to 22.37 percent by 4:38 p.m. in Kiev. Ukraine’s currency depreciated 1 percent to 8.79 per dollar, extending the drop in the past three days to 4 percent, according to data compiled by Bloomberg. That was the worst performance worldwide after the Kazakh tenge, which was devalued by the central bank in Almaty this week.
The European Union is ready to provide financial aid to a new Ukrainian cabinet if leaders are committed to the rule of law and a stronger economy, Enlargement Commissioner Stefan Fule said today in Kiev after talks with President Viktor Yanukovych and the opposition. While the 28-nation bloc is trying to end to anti-government protests that are into a third month, Ukraine’s foreign-currency reserves slumped to a seven-year low after Russia suspended its bailout.
“The political deadlock has a direct impact on Ukraine’s stability,” Dmitri Petrov and Peter Attard Montalto, London-based analysts at Nomura Holdings Inc., wrote in an e-mailed report today. “Initiation of a political dialog may have created a false impression of resolution.”
The sides are arguing over proposals to redo the Constitution to weaken the president’s powers and install a new coalition government following the resignation of Premier Mykola Azarov in January after police forces cracked down on the protesters, killing seven demonstrators.
The cost of insuring the country’s debt against non-payment using credit-default swaps jumped 73 basis points to 1,252, the highest since July 2009, according to CMA prices. The yield on Ukraine’s dollar bonds due in April 2023 increased nine basis points to a two-month high of 10.48 percent.
The International Monetary Fund, which has called for a more flexible currency regime, would play a “central” role in a potential western aid effort, Fule said. Russia, which bought $3 billion in Ukrainian Eurobonds in December to help avert default, halted further payments after Azarov’s departure.
“It is difficult to see any agreement with the IMF/West or Russia until a new government is in place, Timothy Ash, a London-based strategist at Standard Bank Group Ltd., wrote by e-mail today. ‘‘As financial support for Ukraine hangs in the balance, Ukrainian asset prices continue to push lower.’’