Ukraine Hryvnia Sinks With Bonds as Violence Sparks Warnings
The hryvnia weakened the most in the
world as Ukrainian bonds and stocks sank on mounting concern
that an insurgency in the country’s east is worsening.
The currency dropped 6.2 percent to an all-time-low 15.84
per dollar by 3:30 p.m. in Kyiv, down 18 percent since the
central bank loosened its management of the exchange rate a week
ago. The Ukrainian Equities Index slid 6.4 percent, the most
among 93 global gauges tracked by Bloomberg. The yield on the
sovereign’s benchmark Eurobonds approached record highs.
Ukraine’s military said today the pro-Russian rebels in the
eastern region known as Donbass are drafting civilians in the
areas they control and five government soldiers have been killed
over the past 24 hours. The EU and U.S. have threatened to
tighten sanctions on Russia, saying yesterday the country keeps
arming the insurgents across the border.
“The market moves that we’re seeing are predominantly
driven by the fear that fighting would escalate significantly in
Donbass following reports of reinforcements of separatists from
Russia,” Fyodor Bagnenko, a fixed-income trader at Dragon
Capital in Kyiv, said by e-mail today. Hryvnia depreciation
“feeds into anxiety on the local-stock market,” he said.
The National Bank of Ukraine scrapped its target exchange
rate of 12.95 per dollar on Nov. 4 after interventions to prop
up the hryvnia cut its foreign reserves to $12.6 billion in
October, the lowest in more than nine years. A more flexible
hryvnia rate is one of the conditions of the International
Monetary Fund for keeping the country afloat with bailout loans.
‘Speculative Demand’
Investors ditched Ukrainian assets after German Foreign
Minister Frank-Walter Steinmeier said today that “renewed
preparations for violent conflict” were underway in eastern
Ukraine. The yield on the nation’s dollar-denominated notes due
July 2017 rose 14 basis points to 16.13 percent, approaching
last month’s 16.32 percent closing record.
The hryvnia has lost 48 percent this year against the
dollar, the most among all currencies worldwide tracked by
Bloomberg, followed by a 29 percent slump for Russia’s ruble.
“Demand for foreign currency is considerably reduced at
levels above 15.50, but the fear of military escalation is
leading to some speculative demand,” Dragon’s Bagnenko said.
The hryvnia’s slump shows Ukrainians are buying foreign
currencies on concern the conflict will worsen, according to
Timothy Ash, London-based chief economist for emerging markets
at Standard Bank Group Ltd. The depreciation will increase the
cost of rescuing Ukraine’s ailing banks as non-performing loans
will rise and capital shrink, he said by e-mail today.
“Ukraine and the hryvnia face a crisis of confidence” and
“the market knows the NBU has limited foreign reserves to
support the currency,” Ash wrote. “Ukraine needs a major step
up in the Western financing package to convince the guy on the
street that the West will stand behind Ukraine.”
To contact the reporter on this story:
Krystof Chamonikolas in Prague at
kchamonikola@bloomberg.net
To contact the editors responsible for this story:
Wojciech Moskwa at
wmoskwa@bloomberg.net
Matthew Brown, Alex Nicholson