Ukraine debt insurance costs soar, Latam assets sink

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hryvnia1 Reuters. Banknotes of Ukrainian hryvnia.

Rio de Janeiro/London - Growing fears of a default pushed Ukraine's debt-insurance costs to four-year highs on Thursday, while concern over economic growth and inflation drove Latin American assets lower.

Higher US 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.

Nigeria's currency rebounded, however, following a central bank intervention.

Concern has been growing over how Ukraine can prop up its currency and pay off its debt.

Russia suspended a $15 billion bailout after Ukrainian President Viktor Yanukovich sacked his prime minister late last month.

“Ukraine is on the knife-edge of solvency risk,” said Gabriel Sterne, an economist at broker Exotix.

The Ukrainian central bank brought in temporary currency controls last week after the hryvnia fell below 9 per dollar for the first time in five years.

The bank said on Thursday controls may last longer than two weeks, as the currency continued to fall.

Investors were not convinced the central bank could continue to defend the hryvnia.

The currency weakened further on Thursday, losing 1.5 percent against the dollar, and Ukraine's 5-year credit default swaps rose further, gaining 116 basis points from Wednesday's close to 1,241 bps, according to Markit.

Hungary's forint fell 0.8 percent to 311.75.

Investors are watching inflation data due Friday for clues on whether rates will be cut again next week.

Hungary's benchmark rate is already at a record-low 2.85 percent.

Higher US Treasury yields weighed on sentiment as investors moved money from emerging-market assets into the recovering US economy.

The benchmark emerging equity index fell 1 percent, with Chinese, Indian and Russian shares all weaker.

In Latin America, both Brazil's real and Mexico's peso weakened slightly.

MSCI's Latin American stock index fell the most in more than a week.

A proposed increase in consumer electricity rates has heightened inflation expectations in Brazil, where yields on interest rate futures ticked higher Thursday.

Weaker-than-expected retail sales also sapped risk appetite.

“Some calculations now suggest gross domestic product could fall into negative territory in the fourth quarter, something that was (previously) out of the question,” said Gustavo Mendonca, an economist with Saga Capital in Rio de Janeiro.

A plunge in Banco do Brasil SA shares helped drag Brazilian stocks down.

The state-run lender posted worse-than-expected quarterly earnings and signalled a possible slowdown in lending this year.

Mexican shares also dropped, following weak earnings from conglomerate Alfa.

Elsewhere, the Nigerian naira rebounded from a two-year low against the dollar after the central bank sold an undisclosed amount of hard currency to lenders to shore up the currency.

Nigerian stocks and bonds got hammered earlier in the session as investors sold off frontier-market assets.

Africa's second-largest economy and biggest oil producer has been a top frontier-market investment in recent years.

But political instability is a concern before upcoming elections, and the central bank has tightened reserve requirements. - Reuters


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