(Bloomberg) -- Ukraine’s bonds slid the most since last year’s restructuring as investors pared expectations for near-term peace prospects after a public falling out in the White House.
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Ukraine’s dollar bonds were the worst performers across emerging-markets on Monday. Eastern Europe’s other fixed-income markets also declined — although there were no signs of panic selling — while stocks and currencies broadly rebounded.
The region’s assets have rallied this year on growing expectations that US President Donald Trump will quickly broker a peace agreement in Ukraine. While the latest setback to this plan soured sentiment to eastern Europe, it didn’t uproot belief that a deal was still on the cards, even if it won’t come as rapidly as anticipated.
“Expectations were for a very easy and quick deal before market participants understood last week that it’s going to take time,” said Pavel Mamai, managing partner at Promeritum Investment Management in London. “Regardless of how the war ends, whether it’s a very strong peace agreement or whether a truce with risks, it’s going to be positive” for Ukraine’s bonds, he said.
Ukrainian President Volodymyr Zelenskiy’s clash at the White House with Trump late on Friday was followed by a weekend summit by European leaders. They tried to keep the US engaged in Ukraine while also planning more action within Europe to help end the conflict started by Russia’s full-scale invasion three years ago.
Zelenskiy said he’s willing to meet again with Trump if the US president invites him. Ukraine’s zero-coupon dollar-notes maturing in 2035 fell more than 4 cents on the dollar to below 62 cents on Monday, the most since the debt started trading last September following a restructuring deal with creditors.
The Polish zloty, which hit a 10-year high against the euro last week, was up as much as 0.8%, with the Hungarian forint also gaining.
The WIG20 stock index in Warsaw, which has been a key beneficiary of trades betting on an eventual peace deal in Ukraine, was initially down as much as 1.3%, before erasing losses. Astarta Holding, a Ukrainian agricultural company listed in Warsaw, fell as much as 13%.
Pricing Peace
The developments don’t bode well for CEE assets, though the market had already “de-priced the chance of a deal before the Oval office meeting,” said Guillaume Tresca, global EM strategist at Generali Investments in Paris.