By Natsuko Waki and Carolyn Cohn
LONDON Feb 13 Growing fears of a default drove
Ukraine's debt insurance costs to four-year highs on Thursday
and policy concerns pulled Nigerian assets into the emerging
Higher U.S. Treasury yields also weighed on emerging
markets, bringing losses in South Africa's rand, the
Turkish lira, Russian rouble and Hungarian forint
, some of the worst-hit currencies in the sell-off that
began last month.
Concern has been growing as to how Ukraine can keep
supporting its currency and pay off its debt since Russia
suspended a $15 billion bailout after President Viktor
Yanukovich sacked his prime minister late last month.
"Ukraine is on the knife-edge of solvency risk," said
Gabriel Sterne, economist at broker Exotix.
"For a week now, no one has said anything about a backstop -
the EU and U.S. have gone quiet, the Russian cash is frozen and
of course with the capital controls it all does smack of
Anti-government protesters have occupied the streets to
demonstrate against moves that would bring the former Soviet
republic closer into Moscow's economic orbit.
The central bank brought in temporary currency controls last
week after the hryvnia fell below 9 per dollar for the first
time in five years, and said on Thursday that the controls may
last longer than two weeks, as the currency continued to fall
Ukraine's sovereign dollar bond due 2020 hit a two-year low
of 83.50 cents while state energy firm Naftogaz'
2014 bond hit its lowest level since October 2011
The benchmark emerging equity index fell nearly 1
percent, with Chinese, Indian and Russian
shares all weaker.
Higher Treasury yields weighed on general sentiment as
investors pull money away from emerging market assets to the
recovering U.S. economy.
U.S. Treasury yields rose on Wednesday after the U.S. House
of Representatives passed a measure on the debt ceiling and a
new Federal Reserve chair vowed to maintain the bank's current
strategy of reducing asset purchases at a gradual pace.
Yields on U.S. 30-year bonds climbed to
three-week peaks, while those on 10-year notes hit
"At the end of the day, U.S. rates will be tighter and
that's not going to be positive for emerging markets. Also it's
not easy to have a clear view on what's happening in China,"
said Gaelle Blanchard, strategist at Societe Generale in Paris.
The rand and rouble fell 1 percent while the lira dropped
Turkey issued $1.5 billion in a 2045 dollar bond, however,
with prices up more than 1 point in initial trade.
Hungary's forint fell 0.8 percent to 311.50.
Investors are watching inflation data due on Friday for signals
that the central bank could cut interest rates further next week
from record lows of 2.85 percent despite market tensions.
The Nigerian naira hit a two-year low against the
dollar and Nigerian stocks hit the year's lows, a day
after President Goodluck Jonathan sacked four cabinet members in
the latest government changes before elections next year.
The country's 2015 bond yield spiked 10 bps to 13.67
Africa's second largest economy and biggest oil producer has
been a top frontier market investment destination over the past
few years but political instability is a concern before the
elections, and the central bank has tightened reserve
"A lot more hawkishness should be expected by the Nigerian
Central Bank in the following months, but... it will probably
take some time for the naira to fully stabilise, amidst a
scenario of gradual reduction of portfolio bond flows into EM,"
said Citi analysts in a client note.
Elsewhere in frontier markets, the Ghanaian cedi fell
1 percent to a fresh record low of 2.54 per dollar.
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For RUSSIAN market report, see