Ukraine’s bonds are sinking in distress, Russia is falling as tensions rise

A militant from the self-proclaimed Donetsk People’s Republic (DNR) observes the area at combat positions on the line of separation from the Ukrainian Armed Forces near the rebel-held settlement Yasne (Yasnoye) in the Donetsk region, Ukraine January 14, 2022. REUTERS / Alexander Ermochenko

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  • Ukraine’s premium over US government bonds rises above 1,000 bps
  • Market prices at risk of Russian military action
  • Bond spreads can be compared to when Russia annexed Crimea in 2014

LONDON, Jan. 17 (Reuters) – Ukrainian government bonds in dollars plunged into distress, and Russian bonds suffered sharp declines on Monday as fears of yet another Russian military entry into Ukraine showed no signs of easing.

The premium investors demand to hold Ukrainian bonds above safe US government bonds measured by the JPMorgan EMBI Global Diversified Index (.JPMEGDUKRR) rose above 1,000 basis points for the first time since the COVID-19 pandemic occurred in March 2020.

Less than a dozen countries in the 70-plus strong index have four-digit spreads, including Venezuela, Zambia, Lebanon, Sri Lanka and Ghana, all of which are either in default or deep in debt.

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“The market has to price some sort of probability that Russia is invading,” said Viktor Szabo of asset manager abrdn, also noting how the concerns had suddenly hit investors in recent days.

The United States said last week that it feared Russia was preparing a pretext to invade Ukraine if diplomacy did not reach its target, after a massive cyber attack sprayed Ukrainian government websites with a warning to “be afraid and expect the worst”. Read more

Talks between Moscow and Western states over Russia’s deployment of tens of thousands of troops along Ukraine’s border had also ended without a breakthrough. Read more

Russia denies plans to attack Ukraine, but says it can take unspecified military action unless its demands – including a promise from the NATO alliance never to concede Ukraine – are met. Read more


Ukraine’s bond spread, seen as a proxy for such risks, has already more than doubled since November and is now at levels last seen at the height of the COVID-19 market route in March 2020.

They are also broadly comparable to levels hit when Russia invaded and then annexed Crimea in March 2014, although the spans then blew over 4,000 bps in early 2015, when Kiev was tipped to default in the resulting unrest.

Monday’s divestment meant that Ukraine’s bonds continued to fall in international debt markets. Some fell more than 3 cents a day to nearly 80 cents in the dollar after being at 100 cents just over a month ago.

Many questions also saw bid-ask spreads widen to well over one cent, indicating that traders were having difficulty relieving their bonds.

“Ukraine has probably lost market access and it could complicate funding plans this year if they continue to do so,” Stuart Culverhouse told Tellimer.

Last month, the head of Ukraine’s debt management department told Reuters that the country was hoping to wait for the current tensions. However, it will need money at some point with a $ 1 billion refinancing deadline in September. Read more

Ukraine Russia bonds feel the heat

Russian government bonds also felt the pain. Yields on Russia’s 10-year benchmark OFZ government bonds hit their highest level since April 2016 at 9.5%. Refinitive data also showed that the country’s 2043-expiring dollar-denominated bond fell by more than 5 cents at one point, and again, many of the bonds hit their lowest since the 2020 pandemic outbreak.

Russian spreads over U.S. government bonds rose as far as 238 bps on the day, leaving them 71 bps up this year. The measures were then cut slightly after the German newspaper Handelsblatt reported that Western governments had taken the option of cutting off Russian banks from the crucial global Swift payment system. (. JPMEGDRUSR)

The ruble also rose higher on this speculation, but 5-year credit default swaps (CDS) for both countries also rose again. Ukraine’s CDS, which investors use to hedge their risk, rose 76 basis points from Friday’s close to 918 bps, data from IHS Markit showed. Russia has increased by 34 bps to 215 bps.

The veteran of Ukraine and Russia in BlueBay Asset Management, Tim Ash, called it a “strange day” when markets suddenly woke up to the risks of the situation.

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Reporting by Karin Strohecker and Marc Jones; Edited by Toby Chopra and Hugh Lawson

Our standards: Thomson Reuters Trust Principles.


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