Fixed Income

August 19, 2013

Ukrainian sovereign Eurobonds ended notably lower last week on worries about tighter customs procedures in Russia for a wide range of Ukrainian exports. The move is being viewed as retribution for the Yanukovych government’s efforts to sign an association pact with the EU this November. According to our rough estimates, Ukraine’s merchandise exports to Russia should amount to USD 8.2bn in 2H13. A breakdown in a substantial fraction of contracts, rising costs, and transaction delays could cut this figure by USD 1.7bn. However, we still believe that the situation will be resolved in the short term and without critical consequences; otherwise, Ukraine will probably be forced to launch WTO proceedings against the Russian government. Quotes for benchmark 10-year Ukrainian debt dropped by 1.7% to 86.2/87.2 (9.7%/9.6%). Medium-term Ukraine-17s fell 0.6% to close at 90.8/91.5 (9.4%/9.2%). Corporate names followed the sovereigns, with Metinvest-18s decreasing by 0.6% to 96.2/97.5 (9.8%/9.4%).