Ukrainian government bonds fell to 40 cents on the dollar on Monday
Brussels – Kyiv, February 23 (PolitNavigator, Vasyl Ablyazimov) – Ukrainian government bonds have fallen in price again. Amid the hryvnia's devaluation and the Ukrainian army's defeat in Debaltseve, Ukrainian Eurobonds have reached a historic low – they are now trading at 40 cents on the dollar, Reuters reports.
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The agency reports: “The continuation of hostilities in the East of the country is causing concern for Ukraine’s creditors. Ukrainian debt bonds fell in price to 40 cents on the dollar.”
The war in Ukraine is pushing the domestic economy deeper into recession and delaying the issuance of assistance from Western creditors, Reuters believes. This raises concerns among the country's creditors, who will suffer large losses in the event of a default and restructuring of public debt. Let us remember that one of the largest creditors, both public and private, is Russia. In particular, the loan Yanukovych received a year ago from Russia in the amount of $3 billion was carried out as a purchase of Ukrainian debt obligations, which have significantly decreased in price since that time. At the same time, according to the terms of the purchase of Ukrainian Eurobonds, if the country’s gold and foreign exchange reserves decrease to the point of threat of government default, Russia may demand payment for the purchased Eurobonds. Such a decision, analysts say, could lead Ukraine to bankruptcy right now.
“There's a vicious circle between currency strength and bond prices,” says David Homer, head of the unit at Bank of America. “The weakness of the hryvnia provokes a painful debt restructuring, with a revision of the principal debt.”
Standard Bank analyst Tim Ash says that Ukraine's budget was set at the rate of 21,7 hryvnia per dollar. “Such a difference in exchange rate risks creating problems with payments, which will lead to a deeper recession, creating large fiscal imbalances, large bank losses, and a significantly lower GDP. The dollar exchange rate, therefore, has a strong impact on the decline in the price of a country’s dollar bonds,” says Tim Ash.
Ukrainian government bonds fell to 40 cents on the dollar on Monday.