Ukraine’s bonds rallied and stocks soared the most since May 2010 as prospects improved for the country to secure Western aid following the ouster of President Viktor Yanukovych. The hryvnia slumped.
The yield on dollar bonds maturing in 2023 fell 93 basis points to 9.26 percent, the lowest since Jan. 28, as of 5:56 p.m. in Kiev. Ukraine’s notes due in June traded at 96.66 cents to the dollar versus 95.63 cents on Feb. 21, data compiled by Bloomberg show. The UX Index (UX) jumped 15 percent, the biggest advance May 2010, while the currency, which is managed by the central bank, weakened 4.3 percent to 9.3500 per dollar.
Donors including the International Monetary Fund, the U.S. and the European Union said they were prepared to help Ukraine as the interim government warned the nation needs $35 billion of aid to avoid defaulting. Lawmakers in Kiev are working to set up a coalition government after they removed Yanukovych from power last week. The ousted leader was placed on a wanted list for his role in violence that killed at least 82 people.
“Recent developments are unambiguously positive for short-dated credit,” analysts at Goldman Sachs Group Inc., including Andrew Matheny in Moscow, wrote in an e-mailed report. “The impact on the long end of the curve is ultimately less one-sided and will depend on economic policies put into place by the new administration.”
Ukraine, grappling with a record current-account deficit, has seen its foreign reserves plunge 28 percent in the past year to $17.8 billion at the end of January, the lowest level since 2006. The nation is facing $17 billion of liabilities, excluding interest, maturing through the end of 2015, with $1 billion of bonds due in June, data compiled by Bloomberg show.
Parliament Speaker Oleksandr Turchynov, who was handed presidential powers following Yanukovych’s removal, warned the economy was “spinning out of control” in a “pre-default situation.” Standard & Poor’s cut Ukraine’s credit rating to CCC on Feb. 21, eight levels below investment grade.
The plunge in reserves has constrained Ukraine’s ability to support the hryvnia, which has lost 12 percent of its value this year, the most in the world after the Argentine peso and the Kazakh tenge, both of which slumped after their respective central banks eased support.
Ukraine’s reserves will probably drop to as low as $12 billion this month, Goldman Sachs said, adding it expected the hryvnia to weaken to 12 to the dollar. Non-deliverable forward rates for the currency show it depreciating to 10.0750 in three months and 11.3750 in a year.
The 2023 bonds pared a gain of as much as 7.8 percent after Russia’s Foreign Ministry said the EU-brokered peace accord agreed to last week to end deadly clashes was under threat by Ukraine’s interim government. The ministry has concerns about the legitimacy of the parliament’s actions, according to a statement on its website.
Ukraine is turning to other sources for assistance after Russia suspended its $15 billion aid program last month following the resignation of Mykola Azarov as prime minister. Talks on funding may resume after a new government is formed, RIA Novosti reported, citing Russian Finance Minister Anton Siluanov in Sydney.
Ukraine needs to renew its IMF program immediately as it lacks funds to settle maturing debt, Arseniy Yatsenyuk, the leader of former Premier Yulia Tymoshenko’s party, said in a parliamentary council meeting today.
The Washington-based fund is ready to help Ukraine “from an economic point of view,” Managing Director Christine Lagarde told reporters in Sydney following a meeting of the Group of 20 officials yesterday. Treasury Secretary Jacob J. Lew also said the U.S. stands ready to assist the nation as it implements reforms.
The first delivery of Western aid to the country will probably happen next week, following the formation of a new government, Elmar Brok, the head of European Parliament’s foreign affairs committee, said in Kiev today.
The temporary government, which issued an arrest warrant for the former president for his role in the deaths, is ready to embark on “unpopular but necessary reforms” to ensure the country’s solvency, Yatsenyuk said.
A default “does not seem unavoidable” if Ukraine obtains “rapid financial support,” while embarking on “much-needed economic reforms,” analysts at Barclays Plc including Andreas Kolbe in London, wrote in an e-mailed report today. “The significant uncertainties continue to justify a cautious view on the Ukraine credit complex.”
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