Ukraine Bonds Gain on Bet IMF Aid Will Ease Losses for Investors
Ukrainian bonds rose for a second day from a record low on optimism fresh International Monetary Fund aid may reduce investors’ losses in a debt restructuring.
The nation’s benchmark notes maturing July 2017 rose 3.1 cent to 57.19 cents on the dollar by 6:09 p.m. in Kiev, after climbing 1 cent yesterday, data compiled by Bloomberg show. The bonds are down 1.9 cents this week as fighting between government troops and pro-Russian rebels intensified.
Investors are weighing Ukraine’s plan to negotiate more favorable terms for its bonds against a pledge by IMF head Christine Lagarde to back an expanded bailout program. Barclays Plc raised the nation’s debt to market weight from underweight late yesterday, saying investors will probably recover about 60 percent of their holdings in the debt overhaul.
“Although the risk of a re-escalation of the conflict in eastern Ukraine has risen, we think that bond prices have fallen to levels that leave risk-reward balanced, based on our recovery value expectations,” Barclays strategists, led by Andreas Kolbe in London, wrote in a note. A debt restructuring “has most likely become unavoidable,” they wrote.
The bonds gained today even as Germany warned that the governments in Kiev and Moscow may have “the last chance” to halt spiralling violence in the east.
‘Sensible Approach’
Ukraine has requested a four-year funding package to stay afloat as the insurgency deepens an economic contraction and pushes the country to the brink of default. Lagarde said on Wednesday she’s prepared to back the so-called extended fund facility that would replace a $17 billion program the Washington-based lender granted last April.
“A maturity extension remains the most likely and sensible approach to a restructuring,” Kolbe and colleagues said. “A small haircut has a moderate probability in our view, but we assign a lower probability to more severe haircuts.”
Ukraine’s notes have handed investors a 30 percent loss since a year ago, the worst performance after Venezuela among 58 nations in the Bloomberg USD Emerging Markets Sovereign BondIndex. (BEMS)
To contact the reporter on this story: Krystof Chamonikolas in Prague atkchamonikola@bloomberg.net
To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.netChris Kirkham
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