Fixed Income
Ukrainian sovereign debt trading is largely sentiment-driven, and the recent sharp swing in quotes for Ukraine-19s, the shortest outstanding issue, was a precise illustration of this principle. The bonds fell almost 10% on Brexit speculation on Jun 24 but then fully recovered last week, ending at 99.0/99.8 (8.1%/7.8%) on Friday (Jul 1). The benchmark 10-year bonds, Ukraine-26s, gained 1.1% to 95.3/96.0 (8.5%/8.3%). The yield curve for Ukrainian sovereign has been essentially flat since the debt restructuring in late 2015. The VRI derivatives (linked to Ukraine’s future GDP performance) added a solid 3.1% to 33.0/34.0 cents on the dollar. The government’s latest forecasts for 2017 foresee 3% YoY GDP growth and consumer inflation of 8% YoY after 1.5% growth and 12% inflation this year. A worse-case scenario is also acknowledged with only 1.5% GDP growth for 2017.
