Ukraine Bonds Jump to Three-Month High on Restructuring Optimism
Ukraine’s Eurobonds rallied to their highest in more than three months on investor optimism that they face smaller losses than previously anticipated in the nation’s debt restructuring.
The nation’s $1.25 billion of bonds maturing in April 2023 rose 0.41 cent at 3:13 p.m. in Kiev to 53.41 cents on the dollar, the highest level since Feb. 12 on a closing basis. Its 2017 notes jumped 2.9 cents to 49.59 cents after erasing a similar gain late yesterday.
The bonds have rebounded as restructuring negotiations gathered pace before a mid-June target and the details of a creditor proposal to avoid a writedown were reported last week. The International Monetary Fund completed the first review of Ukraine’s bailout program last week, increasing the likelihood it will pay out the second tranche of a $17.5 billion loan.
“The haircut won’t be as dramatic as the market had expected,” Vitaliy Sivach a Kiev-based bond trader at Investment Capital Ukraine, said by e-mail, referring to the writedown. “Markets are pricing a haircut of about 40 percent at the moment which is less than the 50 percent the government may try to achieve, and more than the 25 percent that creditors could potentially accept.”
The country’s dollar-denominated debt has returned 9.3 percent in the past month, the best performance among 58 developing nations in the Bloomberg Emerging Market Sovereign Bond Index after losing 16 percent in the first four months of the year.
Violence Intensifies
The bonds gained on Wednesday even as violence intensified in the country’s easternmost regions, where a pro-Russian insurgency has demolished Ukraine’s industrial base. Two civilians were killed as their car was hit by mortar fire as the government said shelling of its troops near the city of Donetsk.
The escalation risks endangering a cease-fire sealed in February, which, while not eliminating violence has curbed the death toll in the yearlong conflict. Ukraine, backed by the U.S. and the European Union, needs the truce to hold as it seeks to revive its shrinking economy and fragile currency.
Foreign-currency reserves rose to $9.9 billion in May from $9.6 billion in April, the National Bank of Ukraine said in a statement today. The country’s foreign-cash buffer fell to as low as $5.6 billion in February as the government paid energy bills to Russia and the central bank struggled to contain a slump in the hryvnia.
Capital Controls
The central bank pledged on Wednesday to ease controls on foreign-exchange purchases imposed in February to help contain the hryvnia’s slide to a record. Other measures included raising the benchmark rate to 30 percent, the world’s highest, on March 3.
Ukraine’s currency strengthened 0.6 percent to 20.95 against the dollar. The hryvnia has strengthened 63 percent since touching 34.247 per dollar on Feb. 27 yet remains 25 percent weaker this year.
“We have worked out a so-called road map with IMF experts,” Deputy Governor Oleh Churiy told reporters in Kiev today. “The removal of capital controls will be very gradual, we will watch how the situation develops.”
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