Ukraine Bonds Slump With Hryvnia After Prime Minister Resigns

Ukrainian government bonds fell to a three-week low as Prime Minister Arseniy Yatsenyuk’s resignation prompted concern about political stability before a potential military showdown with rebels in the city of Donetsk.

The yield on the dollar bond due July 2017 rose for a second day, gaining 22 basis points to 8.85 percent, the highest level since July 7. The hryvnia weakened 1.5 percent to 11.91 per dollar by 4:02 p.m. in Kiev, according to data compiled by Bloomberg.

The parliament went into recess without voting on Yatsenyuk’s resignation, which followed a failure to pass bills on military funding and cutting social spending required by the country’s $17 billion International Monetary Fund aid deal. The U.S. accused Russia of shelling Ukrainian military positions and government troops battled separatists in Donetsk.

“Political noise related to the collapse of the ruling coalition and later resignation of Yatsenyuk is probably negative short term, but positive medium term,” Nicolaie Alexandru-Chidesciuc, a London-based analyst at JPMorgan Chase & Co., wrote in a report to clients today. “Snap elections are likely to consolidate the leadership position of President Petro Poroshenko and are also likely to lead to the formation of a new and stronger majority in parliament.”

Yatsenyuk’s administration took charge in February after street protests prompted Kremlin-backed President Viktor Yanukovych to flee. Since then, the government has battled a pro-Russian insurgency in the east of the country. It accuses the militants of downing a Malaysia Airlines jet last week.

“It seems that the tragic MH17 crash only exacerbated the tensions between the two countries, and diminished the likelihood of a peaceful resolution of the conflict in eastern Ukraine,” Tatiana Orlova, a London-based economist at Royal Bank of Scotland Group Plc, wrote in an e-mailed report today.

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