Loneliness of Kyiv Trader Shows Bond Market Overrun by Protests

For 29-year-old Fyodor Bagnenko, a
fixed-income trader at Dragon Capital in Ukraine, selling bonds
has become a lonely business.

From his seven-story office in central Kyiv, about 20
minutes from the barricades on Independence Square that were the
epicenter of protests that triggered the worst crisis between
Russia and the West since the Cold War, he would trade more than
$20 million of bonds a day last year. Since the revolution,
there have been days where he couldn’t close a single deal as
trading in Ukrainian financial assets dried up.

“We’ve had days where the market’s dropped five points or
more and not a buyer in sight,” he said as he headed to his
morning meeting March 14. “People have gotten whiplash, with
the market jumping from complete indecision to frantic action,
with the whole world trying to buy, or sell, simultaneously.”

Not long ago, Ukraine was one of the hottest spots in
emerging markets, posting returns of 24 percent on its dollar-denominated notes in 2012 and luring foreign firms led by
Franklin Resources Inc. Those returns turned negative last year
as the tug of war between Russian President Vladimir Putin and
the West for control of Ukraine began to take shape amid the
protests.

The value of stocks traded on the Ukrainian Exchange has
dropped 27 percent this year to 970 million hryvnia ($91
million), according to data on the bourse’s website. The
benchmark equity gauge is up 9.3 percent over the past year
after tumbling 69 percent the previous two years.

Choppy, Illiquid

Regulated corporate-bond trading slumped to 111 million
hryvnia, about a quarter of the volume from the same period of
last year, while trade in local-currency government bonds
amounted to 27 million hryvnia, the data show.

The price of Ukraine’s 2023 dollar bond swung more than 2
percent on one in every four trading days this year, compared
with about one in 17 days last year, according to data compiled
by Bloomberg. The notes advanced to 85.82 cents on the dollar
yesterday, reducing the yield to a two-week low of 9.91 percent.

“Eight years at Dragon and I’ve never had to deal with
this level of stress before,” Bagenko said.

Franklin Templeton, whose $190 billion global bond group is
overseen by Michael Hasenstab, has boosted holdings of Ukrainian
government bonds to $7.3 billion, according to data from the
asset manager’s most recent filings compiled by Bloomberg.

Burning Tires

“The Templeton Global Bond group has the size to make what
may seem like overall large investments in a single country,”
Adnan Abdel-Razzak, a Dubai-based spokesman for the firm, said
by e-mail yesterday. He declined to comment on the company’s
view on its Ukraine investment or its latest holdings.

While the burning piles of tires have been extinguished in
Kyiv and snipers no longer target protesters from rooftops,
Bagnenko is continuing to work against a backdrop of waning
investor sentiment that underscores his country’s economic and
political fragility. Ukraine’s new leaders are lobbying for aid
from the International Monetary Fund, the European Union and the
U.S.

Ukraine, which has $10 billion in foreign debt payments to
make this year, has seen its currency reserves dwindle by about
50 percent over the last two years to $15.4 billion on Feb. 28.

The IMF is making “significant” progress in aid talks
with the government in Kyiv, the lender said on March 20.

Daily bond moves will prove hard to assess until the
country’s political environment stabilizes, according to Simon Quijano-Evans, the London-based head of emerging-market research
at Commerzbank AG.

‘Roller-Coaster Ride’

“We can’t talk about short-term gains on bonds for
whatever reason,” Quijano-Evans said by e-mail on March 21.
“The recent history of Ukrainian bonds has been a roller-coaster ride that is reflective of a non-functioning economic
and political backdrop.”

Bagnenko said he supported the ouster of President Viktor Yanukovych, who fled to Russia after more than 100 people died
around Kyiv’s Maidan, or Independence Square, last month. He and
his colleagues at Dragon Capital went through the barricades on
Khreshchatyk Street to show their support for the protesters who
have camped in a makeshift tent city since November.

“There were days of trading all day in a market in free-fall, and then heading out to Maidan to show solidarity with the
protesters at night,” Bagnenko said. “I’d come home smelling
of smoke from the camp fires, only to go to sleep and start it
all again.”

To contact the reporter on this story:
Jake Rudnitsky in Moscow at
jrudnitsky@bloomberg.net

To contact the editors responsible for this story:
Wojciech Moskwa at
wmoskwa@bloomberg.net;
Justin Carrigan at
jcarrigan@bloomberg.net
Amit Prakash