Bloomberg News

Ukraine Yields Drop to 6-Month Low as Bailout to Boost Economy

December 20, 2013

Ukraine’s 2014 dollar bond yields fell to a six-month low on speculation a $15 billion Russian bailout will help the economy rebound from recession.

The yield on the note fell 37 basis points to 8.11 percent at 5:37 p.m. in Kiev, from a peak of 20.92 percent on Dec. 10, according to data compiled by Bloomberg. The hryvnia, which is controlled by the central bank, fluctuated, gaining 0.3 percent to 8.25 per dollar after dropping by the same amount.

Gross domestic product may grow 3 percent in 2014 compared with an earlier forecast for 0.5 percent, Vladimir Osakovskiy, a Moscow-based analyst at Bank of America Corp., wrote in an e-mailed report today. Russian President Vladimir Putin pledged this week to buy Ukrainian Eurobonds and cut the price of natural gas to help the former Soviet republic avoid default as foreign-currency reserves dropped to a seven-year low.

Promised budget spending ahead of elections in 2015 will be a “driver of broader acceleration” next year, with the “abundant foreign currency inflows” propping up the hryvnia, Osakovskiy wrote.

Ukraine’s Prime Minister Mykola Azarov, facing the largest anti-government street protests in almost decade and the third recession since 2008, pledged to increase welfare spending and public sector wages on Dec. 18.

‘Overvalued’ Hryvnia

While the Russian aid won’t address the difficulty of an “overvalued” currency and a “persistent” current-account deficit, it will allow the central bank to keep the hryvnia around 8.3 per dollar throughout 2014, the Bank of America analyst said. Ukraine’s gross domestic product shrank 1.3 percent in the July to September period from a year earlier, the fifth quarter of contraction.

The yield on Ukraine’s dollar bonds due 2023 basis points declined 10 basis points to a two-day low of 9.06 percent, down from as much as 10.80 percent on Dec. 9.

“The market has gone too far, as very short term Russian cash does not really solve the underlying issues,” Timothy Ash, a London-based emerging-market strategist at Standard Bank Group Ltd, wrote in an e-mailed report today.

The first Ukrainian bonds sold to Russia under the bailout agreement will mature on Dec. 20, 2015, and carry a coupon payable every six months, the government in Kiev said in a statement posted on its website yesterday. Bookbuilding for the $3 billion sale ends today, Interfax reported, citing Russian Deputy Finance Minister Sergey Storchak.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


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