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EMERGING MARKETS-Ukraine debt insurance costs soar, Nigerian assets drop
February 13, 2014 / 12:05 PM / 4 years ago

EMERGING MARKETS-Ukraine debt insurance costs soar, Nigerian assets drop

By Natsuko Waki and Carolyn Cohn

LONDON, Feb 13 (Reuters) - 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 market retreat.

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 desperation.”

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 on Wednesday.

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 two-week highs.

“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 0.6 percent.

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 percent.

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 requirements.

“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.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

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