Ukraine’s Bonds Fall Most in Four Months as Fighting Intensifies
Frankfurt (Aug 28) Ukrainian Eurobonds fell for a seventh day, sending the yield to its biggest increase in almost four months, as fighting spread and the government said the counteroffensive amounted to a Russian invasion.
The yield on dollar-denominated notes due in July 2017 rose 87 basis points to 11.8 percent by 2:14 p.m. in Kiev, the biggest increase since May 2 and highest in three months. The rate has climbed 207 basis points in seven days, the longest such streak in nine months. The hryvnia weakened 0.8 percent to 13.7092 per dollar, while the Ukrainian Equities Index (UX) fell 8.8 percent, the biggest decline since Russia’s incursion into Crimea began at the start of March.
Pro-Russian rebels widened attacks, taking several towns, including those near the Sea of Azov, opening a new front and supply channel, said Anton Herashchenko, an adviser to Ukrainian Interior Minister Arsen Avakov. JPMorgan Chase & Co. and Nomura Holdings Inc. recommended investors cut holdings of Ukrainian debt, citing the conflict’s impact on the economy and the fading prospect of a diplomatic resolution.
“The Ukrainian economy is already in a fragile position given the sharp economic contraction and a worsening economic outlook,” JPMorgan analysts including Michael Marrese and Nicolaie Alexandru-Chidesciuc said in an e-mailed report. The escalation of fighting “could exacerbate the situation in the months ahead,” they said.
‘Sharp Deterioration’
Ukrainian President Petro Poroshenko canceled a state visit to Turkey to coordinate the country’s military response to the “sharp deterioration” of events in rebel-held territory, he said on his website today.
Russia may be directing the attacks as the fighting spread to previously peaceful areas, the U.S. said yesterday, falling short of calling it an invasion.
Russian President Vladimir Putin met Poroshenko this week and hailed the talks as a step toward a resolution. Putin said conditions for a cease-fire weren’t discussed because Russia isn’t a party to the conflict.
JPMorgan cut its recommendation on Ukrainian debt to a “small” underweight from marketweight, saying the position is small due to the unpredictable nature of the crisis. The economy will shrink 7.8 percent this year and 5.2 percent in 2015, according to the bank’s latest forecast.
Worst Performance
Ukraine’s dollar-denominated bonds have lost 3.8 percent this month through yesterday, the worst performance among 14 eastern European countries in the Bloomberg Dollar Emerging Market Sovereign Bond Index and the only decline except for a less than 0.1 percent drop for Armenian debt.
Ukrainian President Petro Poroshenko canceled a state visit to Turkey to coordinate the country’s military response to the “sharp deterioration” of events in rebel-held territory, he said on his website today.
Nomura added to its underweight position on Ukrainian credit citing the growing cost the conflict is imposing on the economy, analysts including Peter Attard Montalto and Dmitri Petrov in London wrote in an e-mailed report today.
Source: Bloomberg
