Russia may buy USD 2 bln in Ukrainian debt this week

Макроэкономика 18.02.2014 Russian Finance Minister Anton Siluanov indicated the Russian government may continue to fulfill its Dec. 17 agreement by purchasing a second round of bonds from the Ukrainian government. “This week, for USD 2 bln,” he curtly answered a journalist’s question at a Feb. 17 briefing on when his government will buy the next issue of Ukrainian Eurobonds. The first round was bought in December and on Jan. 29, the Russian government announced it would postpone its earlier announced purchase of USD 2 bln in debt from Ukraine, citing the need to examine the new Ukrainian government. Another mentioned condition for the purchase was the repayment of Naftogaz’s debt to Gazprom. Alexander Paraschiy: It seems like Naftogaz started repayment of its debt to Gazprom (having accumulated USD 1.3 bln of state aid for this purpose yesterday), which allows the Russians to renew their macroeconomic support. The second, more critical condition involves the appointment of a new Ukrainian government, which may occur as early as today. The new prime minister is likely to be loyal to President Viktor Yanukovych and the Russian government, according to news reports, which will only sharpen the political crisis. The Russian minister’ statement may theoretically lead to a slight downward move in the shorter part of Ukraine’s sovereign yield curve, which has been above 20% over the last several days. At the same time, we do not expect the decline to be sustainable: today EuroMaidan protesters are mobilizing for a march on parliament that could renew friction. Should parliament approve a president’s ally as prime minister, these protests may become more radical and lead to renewed escalation, thus preventing any decrease in sovereign risk.