Bloomberg News

Loneliness of Kiev Bond Trader Shows Market Was Wiped Out

March 25, 2014

Ukraine

The Ukrainian flag in Kiev's Independence Square, Ukraine, on March 13, 2014. Photographer: David Azia/AP Photo

For 29-year-old Fyodor Bagnenko, a fixed-income trader at Dragon Capital in Ukraine, selling bonds has become a lonely business.

From his seven-story office in central Kiev, about 20 minutes from the barricades on Independence Square that were the epicenter of protests that triggered the worst crisis between Russia and NATO countries since the Cold War, he would trade more than $20 million of bonds a day last year. Since the revolution, there have been days where he couldn’t close a single deal as trading in Ukrainian financial assets dried up.

“We’ve had days where the market’s dropped five points or more and not a buyer in sight,” he said as he headed to his morning meeting March 14. “People have gotten whiplash, with the market jumping from complete indecision to frantic action, with the whole world trying to buy, or sell, simultaneously.”

Not long ago, Ukraine was one of the hottest spots in emerging markets, posting returns of 24 percent on its dollar-denominated notes in 2012 and luring foreign firms led by Franklin Resources Inc. Those returns turned negative last year as the tug of war over Ukraine spurred unprecedented protests.

The value of stocks traded on the Ukrainian Exchange has dropped 27 percent this year to 970 million hryvnia ($91 million), according to data on the bourse’s website. The benchmark equity gauge is up 9.3 percent over the past year after tumbling 69 percent the previous two years.

Choppy, Illiquid

Regulated corporate-bond trading slumped to 111 million hryvnia, about a quarter of the volume from the same period of last year, while trade in local-currency government bonds amounted to 27 million hryvnia, the data show.

The price of Ukraine’s 2023 dollar bond swung more than 2 percent on one in every four trading days this year, compared with about one in 17 days last year, according to data compiled by Bloomberg. The notes advanced to 86.26 cents on the dollar at 3:13 p.m. in Kiev, curbing the yield to 9.82 percent, the lowest since March 5, the data show.

“Eight years at Dragon and I’ve never had to deal with this level of stress before,” Bagnenko said.

Franklin Templeton, whose $190 billion global bond group is overseen by Michael Hasenstab, has boosted holdings of Ukrainian government bonds to $7.3 billion, according to data from the asset manager’s most recent filings compiled by Bloomberg.

Burning Tires

“The Templeton Global Bond group has the size to make what may seem like overall large investments in a single country,” Adnan Abdel-Razzak, a Dubai-based spokesman for the firm, said by e-mail yesterday. He declined to comment on the company’s view on its Ukraine investment or its latest holdings.

While the burning piles of tires have been extinguished in Kiev and snipers no longer target protesters from rooftops, Bagnenko is continuing to work against a backdrop of waning investor sentiment that underscores his country’s economic and political fragility. Ukraine’s leaders are lobbying for aid from the International Monetary Fund, the European Union and the U.S.

Ukraine, which has $10 billion in foreign debt payments to make this year, has seen its currency reserves dwindle by about 50 percent over the last two years to $15.4 billion on Feb. 28.

The IMF is making “significant” progress in aid talks with the government in Kiev, the lender said on March 20. The fund will complete its mission to Kiev today after talks with Premier Arseniy Yatsenyuk, Deputy Foreign Minister Danylo Lubkivsky told reporters.

Daily bond moves will prove hard to assess until the country’s political environment stabilizes, according to Simon Quijano-Evans, the London-based head of emerging-market research at Commerzbank AG.

‘Roller-Coaster Ride’

“We can’t talk about short-term gains on bonds for whatever reason,” Quijano-Evans said by e-mail on March 21. “The recent history of Ukrainian bonds has been a roller-coaster ride that is reflective of a non-functioning economic and political backdrop.”

Bagnenko said he supported the ouster of President Viktor Yanukovych, who fled to Russia after more than 100 people died around Kiev’s Maidan, or Independence Square, last month. He and his colleagues at Dragon Capital went through the barricades on Khreshchatyk Street to show their support for the protesters who have camped in a makeshift tent city since November.

“There were days of trading all day in a market in free-fall, and then heading out to Maidan to show solidarity with the protesters at night,” Bagnenko said. “I’d come home smelling of smoke from the camp fires, only to go to sleep and start it all again.”

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net; Justin Carrigan at jcarrigan@bloomberg.net


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