‘Geopolitical risks’ scaring credit capital away from Ukraine, central bank says

22 January, 05:38 AM
The geopolitical risks faced by Ukraine – namely the growing threat of a further Russian invasion – has led to a spiking of interest rates on government bonds, effectively shutting the country out of the foreign capital markets (Photo:Thomas Breher / Pixabay)

The geopolitical risks faced by Ukraine – namely the growing threat of a further Russian invasion – has led to a spiking of interest rates on government bonds, effectively shutting the country out of the foreign capital markets (Photo:Thomas Breher / Pixabay)

The geopolitical risks faced by Ukraine – namely the growing threat of a further Russian invasion – has led to a spiking of interest rates on government bonds, effectively shutting the country out of the foreign capital markets, head of the National Bank of Ukraine’s Open Market Operations Oleksiy Lupin told Ukrainian news agency Interfax-Ukraine on Jan. 20.

“The geopolitical situation led to a surge in 'risk premiums’ (on Ukrainian bonds) in the markets, both foreign and domestic,” said Lupin.

“On foreign (capital) markets yields on our bonds went into double digits, so unfortunately for now Ukraine is effectively shut out of these markets.”

According to Lupin, domestic borrowing seems to be faring better, especially in comparison to March 2020. At that time, government bond yields were as high as 20-25%, while recently, on Jan. 19, they peaked at 16-17%.

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Lupin added that at the moment, purchasing Ukrainian government bonds on the secondary market is a sensible investment. Once the tensions between Russia and Ukraine ease, bond yields will fall to reasonable levels, and the government borrowing via bond auctions will become available again.

On Jan. 19, the price of Ukrainian Eurobonds rallied briefly, but then resumed its decline.

After reaching an annual nadir, on Jan. 19 the Ukrainian hryvnia’s exchange rate recovered slightly, to UAH 28.30 to the dollar.

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