Fixed Income

August 27, 2018

Ukrainian sovereign Eurobonds saw notable gains last week after the government approved a strategy to reduce the state debt-to-GDP ratio from the current level of near 70% (including state-guaranteed debt) to 52% by the end of 2019. In absolute figures, this amount was at USD 76bn as of Jun 30, including USD 20.5bn of outstanding Eurobonds. The closest benchmark issue to 10-year bonds, Ukraine-27s, rose 2.0% to 93.0/94.0 (8.9%/8.7%) and medium-term Ukraine-23s added 1.3% to 99.3/100.1 (7.9%/7.8%). The VRI derivatives (linked to Ukraine’s future GDP growth with expiration in 2040) gained 1.2% to 56.2/57.2 cents on the dollar despite the Finance Ministry's admission that payouts on these VRIs are unlikely in the medium-term outlook. The VRI's terms state that if Ukraine’s economic growth is below 3% or GDP is less than USD 125bn, then there is no payment on the instrument.