Ukraine Bonds Drop as Brown Brothers to Aberdeen Warn on Outlook
Ukraine’s Eurobonds fell, pushing yields higher for a sixth day, as Aberdeen Asset Management Plc and Brown Brothers Harriman & Co said that violence in the east of the country raises concern that the selloff isn’t over.
The yield on the dollar-denominated debt due April 2023 rose 12 basis points to 10.35 percent, the highest since March 19. The Ukrainian Equities Index pared a drop of as much as 1.8 percent after Mark Mobius, who oversees about $50 billion as executive chairman of Templeton Emerging Markets, said the company is trapped with its Ukraine equity holdings and isn’t selling them.
Ukrainian bond yields have risen 50 basis points in the past six days as an accord to ease tension in the country unraveled, prompting the U.S. and European Union to broaden their sanctions on Russian individuals and companies. The mayor of Ukraine’s second-largest city, Kharkiv, was shot in the back and rushed to hospital today after the seizure of international military inspectors by pro-Russian separatists last week.
“Even as yields keep rising, political and economic risks are still too big” to hold any Ukrainian government debt, Viktor Szabo, who helps oversee more than $11 billion in emerging-market debt at Aberdeen, said by e-mail.
The hryvnia depreciated 0.4 percent to 11.55 per dollar, extending its drop this year to 29 percent, the most among more than 100 currencies tracked by Bloomberg. The shooting in Kharkiv showed risks of the standoff with Russia are “asymmetrical to the downside,” BBH strategists, including Ilan Solot in London, wrote in an e-mailed report today.
The U.S. imposed new sanctions today on seven Russian officials and 17 companies linked to Russian President Vladimir Putin’s inner circle involved in banking, energy and infrastructure, including the chief executive officer of OAO Rosneft. The EU added 15 people to its list to protest the Kremlin’s backing of separatists in eastern Ukraine and its refusal to pull troops away from the border.
Russia’s Micex Index rebounded after the sanctions, which included no major banks, were announced, gaining 1.5 percent. OAO Sberbank, the nation’s largest lender, rallied 5 percent. Mobius said some stocks in Russia were trading at “excellent bargains.”
The Ukrainian Equities Index (UX) declined 0.2 percent, trimming this month’s increase to 10 percent. An index of Ukrainian stocks listed in Warsaw rose 0.3 percent, trimming this year’s drop to 33 percent.
Templeton is keeping its holdings of Ukrainian companies, “mainly in the western area,” where “business goes on as usual,” Mobius said in an interview in Bucharest today. “In fact some of these companies benefit from the devaluation of the hryvnia because they become very export competitive.”
While the staff of the International Monetary Fund last week endorsed a $17 billion bailout to help Ukraine avert a default, the Washington-based lender forecast the country’s economy will contract 5 percent this year, more than the government’s outlook for a 3 percent drop in gross domestic product.
“Foreign financial aid will help to keep solvency, but it will be hard to show an attractive growth outlook given the structural challenges the Ukrainian economy faces,” Aberdeen’s Szabo said.
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