Ukraine’s Bonds Advance as Lawmakers Approve Budget

Ukraine’s bonds gained as Prime Minister Arseniy Yatsenyuk succeeded in his second attempt to push an emergency budget through parliament in a bid to avert a potential sovereign default.

Lawmakers in Kiev, who last week snubbed the premier on his financing proposals, voted in favor of budget and tax code amendments, Speaker Oleksandr Turchynov said in televised remarks. The cash is needed to help qualify for the next installment of an International Monetary Fund loan and to press a government offensive against pro-Russia rebels in the east. Without the funds, Ukraine would have risked a default, Yatsenyuk said on July 28.

“The vote is quite positive for both the economy and the market as the amendments comply with IMF requirements for the next loan tranche,” Olena Bilan, chief economist at Dragon Capital, said by phone from Kiev today. “All eyes are now on the military operation and relations with Russia.”

While the IMF bailout in May prompted investors to send the yield on Ukraine’s April 2023 notes down more than 3 percentage points from a February peak of 11.37 percent, the rate climbed for three days after Yatsenyuk submitted his resignation on July 24. The prime minister offered to step down after failing to win the funds needed for battling the separatists and as the downing of a Malaysian Airlines jet triggered fresh sanctions against Russia by the European Union and the U.S. Lawmakers voted to reject his resignation today.

Junk Rating

The yield on the 2023 note fell six basis points to 8.48 percent, compared with 7 percent on the July 2025 bond issued by Jamaica, which shares Ukraine’s Caa3 rating at Moody’s Investors Service. The hryvnia weakened 0.1 percent to 12.2509 per dollar by 3:06 p.m. in Kiev, having declined 33 percent this year, the worst performance among more than 170 currencies tracked by Bloomberg after Ghana’s cedi.

At stake in today’s vote of the Verkhovna Rada in Kiev was the next tranche of IMF funding worth $1.4 billion, following the receipt of $3.2 billion in May. The cabinet also needs about 9 billion hryvnia ($743 million) for the army as it battles the separatist insurrection in eastern regions of the country.

Without budget approval, the government wouldn’t have enough money to pay its soldiers from Aug. 1, Finance Minister Oleksandr Shlapak told lawmakers on July 24.

Ukrainian bonds returned 0.2 percent in July, the worst performance after Russia, Latvia and Armenia among 14 nations in eastern Europe tracked by the Bloomberg Dollar Emerging Markets Sovereign Bond Index. The gauge has gained on average 0.8 percent in the period.

The outcome was “largely as expected” as a failure to pass the bills needed for the IMF aid “would have seen uproar and people on the streets,” Timothy Ash, a London-based economist for emerging markets at Standard Bank Group Ltd., said by e-mail today.

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