09 Января 2018

Ukrainian sovereign Eurobonds started off 2018 with modest gains, as investors seem to assume that stronger growth in the US will boost economic activity elsewhere. However, after a year of double-digit EM returns, one of the key questions for emerging markets in 2018 is whether crises in individual countries can be prevented from contaminating other EM sovereigns. Ukraine faces two primary threats: Russian military activity and the risk that it might not be able to attract enough external financing to cover the current account deficit without suffering a currency devaluation. Unfortunately, hopes that a new loan installment from the IMF could arrive in 2Q18 are continuing to go downhill. The longest outstanding Ukraine-2032 sovereigns gained 1.1% to 99.0/99.5 (7.5%/7.4%), and medium-term 2023 sovereigns edged up 0.2% to 106.4/107.4 (6.4%/6.2%). The VRI derivatives (linked to Ukraine’s future GDP growth with expiration in 2040) added 2.3% to close at 56.0/56.5 cents on the dollar.