(Refiles to clarify sourcing in 4th paragraph)
By Sujata Rao
LONDON, June 20 Ukrainian bonds rose slightly on
Friday, recovering from panic over possible debt restructuring
though most emerging assets weakened against the backdrop of
violence in oil exporter Iraq and a rise in U.S. bond yields.
Emerging stocks were set to snap two weeks of gains, falling
0.3 percent on the day despite record highs on the
world equity index, and most currencies slipped, with energy
importers facing the prospect of significantly higher oil
The United States said it would send up to 300 U.S. military
advisers to Iraq, raising the prospect of a broader military
conflict. In Ukraine too, battles raged, with 300 separatist
rebels reported to have been killed on Thursday.
Ukraine's dollar bonds steadied following a mid-session
plunge on Thursday after an official from the Institute of
International Finance told journalists on a conference call that
Kiev was looking at the possibility of restructuring debt in
future but on a voluntary basis and without imposing haircuts on
The 2017 bond, which fell 2.5 cents on Thursday to 97 cents,
recouped losses at the end of the day and firmed another quarter
cent on Friday to 99.750 cents in the dollar.
Ukraine also paid the coupon on a $3 billion Eurobond.
Societe Generale strategist Regis Chatellier said that while
Ukraine did not immediately need any debt restructuring the
issue was likely to come up in future.
"I don't think it will happen now because Ukraine doesn't
want to scare investors and also, the main issue at the moment
is not debt but gas supply and economic recession," he said.
"But pressure on hard currency reserves is very high...Some
years down the road they will be in a position where debt will
become a problem and they will need some help with this."
But while bond markets calmed, Ukraine's 5-year credit
default swaps have risen 35 basis points on the week, reflecting
the ongoing fighting and gas supply tensions with Russia.
Russian assets failed to benefit from rising oil prices.
Moscow stocks came off 4-1/2 month highs while the rouble
eased from three-week highs to the dollar.
GEO-POLITICS, U.S. YIELDS
Chatellier said emerging assets had been supported in recent
months by investors covering short positions. Emerging stocks
for instance are up 15 percent from February lows, while dollar
bond yield premia over Treasuries have snapped in 100 bps.
"Earlier it was technicals driving emerging markets. Now
it's geo-politics, that will be the case for a while," he said.
However the lack of further sanction threats from the United
States and Europe have emboldened Russian companies to approach
bond markets with roadshows - Sberbank is meeting investors in
London on Friday while Gazprombank is due to do so on Monday.
"There is good news in the fact that we see corporates
return to hard currency issuance ... (But) it remains far from
clear that Russian corporates and banks can return to rolling
all external debt coming due ... given that sanctions remain in
place," Unicredit analysts wrote.
The events in Iraq and the oil price surge were also hurting
Turkey where stocks pulled back 0.25 percent XU100> and 5-year
CDS rose 8 bps to a one-month high, according to Markit.
Emerging markets are also pressured by the U.S. recovery
that could bring forward the date of interest rate rises. Strong
data on Thursday took some of the edge off the Federal Reserve's
dovish message, boosted the dollar and pushed up bond yields.
Earlier in the day, most Asian currencies eased versus the
dollar and stocks fell. Chinese mainland shares posted their
worst weekly loss in almost two months .
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
(Editing by Ruth Pitchford)