Ukrainian Eurobonds at low prices

Обзор облигаций 13.01.2015 Ukrainian Eurobond prices remained low as the 5-year CDS stood at 2,000bp since December 2014, nearly double the 1,000bp level seen during the summer. Spreads to the benchmark widened once more yesterday, albeit at a lower level as the US Treasury yield decline caused Ukrainian Eurobond YTMs to rise less severely. The yield curve adjusted to 16.10-58.03%. Investment implications: Political instability in eastern Ukraine, FX reserves declining to US$7.53bn at the end of last year, and the uncertain outcome of the IMF mission in Kyiv all put negative pressure on Ukrainian debt and sovereign Eurobonds. We anticipate high CDS rates and wide spreads at least until the end of January when the IMF announces a decision on additional tranche funding. However, without additional reserves, risks will remain high as Ukraine will be unable to fulfill all debt repayments and import payments.