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This is post 2 of 4 in the series Hungry for Yield? These Emerging Markets Can Satiate Your Appetite

Political quarrels are a dark side of the relationship between Russia and Ukraine. The bright side is the commonality they share pertaining to their fixed income markets: high yields. Just as India and Indonesia lead Asia in terms of attractive yields, Russia and Ukraine do the same for Eastern and Central Europe.

The graph below shows that yields on the 10-year notes of both countries have declined since the beginning of the year. But in the emerging markets universe, these yield levels are still quite elevated comparatively.

This is reflected in the Eurobond issuance conducted by the country in June.

In June 2017, Russia sold 10 and 30-year Eurobonds worth $1 billion and $2 billion respectively. The issuance was oversubscribed over two times with a total order book of over $6.6 billion. The issue was beneficial for the country as well because yields of 4.25% and 5.25% respectively were the lowest in its history.

The bonds popularity can be further gauged from the fact that the sale came on the same day that the US Senate extended sanctions to some Russian individuals and firms in connection with the countrys annexation of Crimea from Ukraine in 2014.

This led to some US investors pulling out of the sale along with some European buyers because VTB Capital the sole arranger of the sale was also subject to sanctions. But even then, the order book remained strong.

The outlook for Russian bonds looks a bit hazy at this juncture. From purely an investment perspective, yields are attractive and have some room to decline further, thus providing a buying opportunity.

In YTD 2017 until July 17, yields have decline by 64 basis points. Bloomberg reported that Viktor Szabo, an asset manager with Aberdeen Asset Management believes that yields on Russias 10-year notes could drop to 7%.

Related Article Spreads Tell A Story: Emerging Markets Bonds Are Running Out Of Breath

However, the possibility that extended sanctions may be passed by the US House of Representatives is a cause for concern. The bill, in its current form, does not place any restrictions on sovereign debt or derivatives from the country, but has asked for a report on the impact any limits can have.

This leaves the possibility open for either limits or a complete ban on Russian sovereign debt. Foreign investors have already become cautious.

Central bank data had shown that foreigners share of Russias ruble securities, known as OFZ bonds, had surged to an all-time high of 30.7% in May. However, on July 13, central bank First Deputy Governor Ksenia Yudayeva said that this share had fallen below 30%.

The other aspect to track is currency. After having strengthened against the US dollar until April, the Russian ruble (RUB) has been weakening. This does not bode well for local currency bonds when converted into US dollars.

Points to ponder: Ukraine

As far as currency is considered, the Ukrainian hryvnia (UAH) has risen against the dollar in YTD 2017, which makes its local currency denominated bonds attractive. However, these bonds are still not eligible for clearing through Euroclear.

Finance Minister Oleksandr Danylyuk has said that the country is serious about making the countrys bonds Euroclear-able soon. This would certainly enhance the appeal of the bonds as trades will be settled easily.

Both countries have further plans for their fixed income markets this year and beyond. Russia plans to swap $4 billion of old foreign bonds for new ones this year. Meanwhile, Ukraine expects to raise Eurobonds worth $2 billion in 2018.

However, geopolitical developments and currency movement will determine their future appeal.

This is post 2 of 4 in the series Hungry for Yield? These Emerging Markets Can Satiate Your Appetite

Original post:
Russia And Ukraine: Divided By Politics, United By Attractive Bond Yields? - Frontera News

In the run-up to Ukrainian President Petro Poroshenko's recent state visit to Georgia, there was a flurry of speculation about whether Mikheil Saakashvili might be extradited from Ukraine to face trial in Tbilisi on charges stemming from his 10 years as Georgia's president.

Since completing his second term in 2013, Saakashvili has been accused by Georgian authorities of exceeding his authority and misusing budget funds. He remains in Ukraine, where he obtained citizenship and served from May 2015 until November 2016 as governor of Odesa Oblast.

According to the office of Ukraine's Prosecutor General, that country's constitution rules out any such extradition, given that Saakashvili is now a Ukrainian citizen.

The extradition question surfaced in mid-June, when Davit Saqvarelidze, a member of Saakashvili's United National Movement (ENM) who, like him, settled in Ukraine following the ENM's defeat in the October 2012 parliamentary ballot by the current ruling Georgian Dream party, told a Ukrainian TV channel that Poroshenko had discussed the possibility with Georgian Dream founder Bidzina Ivanishvili. Even though he stepped down as Georgian prime minister in late 2013, Ivanishvili is still thought by some to dictate policy behind the scenes.

Saqvarelidze claimed that Poroshenko -- who cited Saakashvili's successes in cracking down on police and local corruption in Georgia when he invited him to take on the Odesa job in May 2015 -- is put out and fed up that Saakashvili is now openly in opposition and campaigning to bring down the Ukrainian government.

Saakashvili has repeatedly accused the Ukrainian leadership of corruption and declared more than once that he sees a major political role for himself in Ukraine "higher than the post of prime minister."

'New Rules Of The Game'

In February 2017, Saakashvili was quoted as telling the Georgian TV station Rustavi-2 that he intends "to establish completely new rules of the game" in Ukrainian politics and "bring a new generation into the political elite." He had previously characterized Ukraine's parliament, the Verkhovna Rada, as "a cemetery" and "a swamp."

Asked on July 18 about the extradition rumors, Poroshenko at first categorically denied that Tbilisi had demanded Saakashvili's extradition. "We have effective communication with the Georgian government but have not received an extradition request. It therefore follows that we haven't discussed it," the news portal InterPressNews quoted him as saying.

The following day, however, Poroshenko told Georgian journalists that he had checked and established that Georgia did indeed request Saakashvili's extradition, but that he had previously been unaware of that fact. He said Ukraine had "replied in the negative, and requested additional information."

Poroshenko went on to say the extradition issue did not figure in his talks with Georgian officials. He stressed that evaluating any such request is "the prerogative of the 'power' agencies and the prosecutor-general, who examines with scrupulous attention any demand for the extradition of a criminal." At the same time, Poroshenko said it would be "a great pleasure for us to cooperate with Georgia in investigating any crimes."

Citizenship Aspect 'An Obstacle'

Georgian Justice Minister Tea Tsulukiani, for her part, released a statement saying that Tbilisi had twice lodged a formal request for Saakashvili's extradition, backed by purported evidence against him, but both requests were turned down. (The first such request was in early 2015, before Saakashvili had been granted Ukrainian citizenship.) She said Tbilisi has complied with Kyiv's request for further information about the charges against Saakashvili.

Georgian Prosecutor-General Irakli Shotadze told journalists in Tbilisi on July 19 that talks with his Ukrainian counterpart about Saakashvili's possible extradition were continuing. Shotadze termed the citizenship aspect "an obstacle," leaving open the possibility that the two sides might be seeking a way around it.

But stripping the former Georgian president of his Ukrainian citizenship, a step that the Ukrainian Constitution seemingly empowers a president to do, could risk negatively affecting Ukraine's renewed aspiration for NATO membership.

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Does Georgia's Ex-President Risk Extradition From Ukraine? - RadioFreeEurope/RadioLiberty

WASHINGTON - The United States may arm Ukrainian government forces fighting against Russian-backed rebels, the new US special representative for Ukraine told the BBC.

Kurt Volker said Washington is actively reviewing whether to send weapons to help Ukraine, a move he says could change Moscow's approach.

"Defensive weapons, ones that would allow Ukraine to defend itself, and to take out tanks for example, would actually to help" to stop Russia threatening Ukraine, Mr Volker said in a BBC interview.

He did not think the move would be provocative, saying: "I'm not again predicting where we go on this, that's a matter for further discussion and decision, but I think that argument that it would be provocative to Russia or emboldening of Ukraine is just getting it backwards."

The US State Department last week urged both sides to uphold the ceasefire, agreed in February 2015, in eastern Ukraine.

A former US permanent representative to Nato, Mr Volker was appointed as US special representative earlier this month.

According to the United Nations, more than 10,000 people have died and 1.6 million people displaced since April 2014, when Russia annexed Ukraine's Crimea peninsula.

Meanwhile, the US House of Representatives is expected to vote overwhelmingly on Tuesday (July 25) for a Bill that would slap new sanctions on Russia, Iran and North Korea.

If the Republican-led Senate passes the measure, US President Donald Trump will need to decide whether to sign the Bill or veto it. Rejecting it would carry a risk that his veto could be overridden by lawmakers if they can muster enough support.

The Trump administration has objected to a provision in the sanctions Bill that the president obtain congressional approval before easing any sanctions on Moscow.

"He's going to study that legislation and see what the final product looks like," White House spokesman Sarah Sanders told reporters on Monday when asked whether Mr Trump would support it.

Mr Trump's relationship with Russia has been a focus of the first six months of his presidency as investigations continue into whether his associates colluded with Russian hackers to influence the election on his behalf.

Russia denies interfering in the US election and Mr Trump denies his campaign colluded with Moscow.

As the Republican-controlled House takes up the sanctions Bill, Mr Trump's son-in-lawJared Kushnerwill visit Capitol Hill for a second straight day to be interviewed about his contacts with Russian officials during the 2016 campaign and the presidential transition.

An earlier version of the Bill, including sanctions on Russia and Iran, passed the Senate 98-2 on June 15. A North Korea sanctions Bill passed the House by 419-1 in May and House lawmakers were becoming increasingly impatient with the Senate's failure to take up that legislation.

House members saw the Iran and Russia sanctions Bill as a chance finally to get the North Korea measure through the Senate.

Reuters contributed to this report.

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US may send weapons to Ukraine, new envoy tells BBC - The Straits Times

As the bloody standoff in Ukraine reaches its annual apex month for violence, Kiev claims Russia is sending more troops near its borders, while the Kremlin has snapped back that it has every right to do so.

Relations between both countries have deteriorated significantly since Russia annexed Crimea from Ukraine in 2014; ithas since backed separatist militants in Ukraines border regions. However, Moscow has not officially declared war on Kiev and continues to deny official involvement in the fighting on the ground.

Related: Russian ally scrapped U.S. base after threat of missile strike

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Speaking during a military conference, captured in a Facebook video andposted on the militarys official account on Sunday, UkrainianChief of General Staff Viktor Muzhenko said his forces had observed new moves on the Russian side of the border.

The organizational and staff structure, the arms and the military equipment that is approaching for reinforcement, indicates that these Russian divisions are striking forces in their essence and are intended for carrying out rapid offensive actions,he said.

The units in question, Muzhenko specified, were three motorized rifle divisions, two of which are usually headquartered at the borders of Ukraines war-torn Donbass regionand one that is usually deployed further north, near Smolensk.

Russian troops have previously dug in near the Ukrainian border, including near separatist-held lands, at times of impending fighting. Observers regularly record peaks in cease-fire violations during August.

A Ukrainian serviceman fires a machine-gun at the industrial zone of the government-held town of Avdiyivka, Ukraine, on May 22. Oleksandr Klymenko/Reuters

Asked to confirm or deny any deployments closing in on the Ukrainian border, Kremlin spokesman Dmitry Peskov did neither.

The Russian Federation is free to change the configuration of armed forces on its territory in accordance with what it views as most purposeful, he told state news agency Itar-Tass on Monday. When it comes to specifics, in any given case it is better to address this question to our colleagues at the Ministry of Defense.

Russia denies officially supporting the insurgents in Donbassbut has not provided a detailed explanation as to where the fighters acquired the troops and equipment to hold one of Europes most numerous armies at bayfor three years.

During a phone call with the leaders of Russia, France and Germany, Ukraines President Petro Poroshenko warned on Monday that the past few days have been some of the bloodiest this year.

Speaking to RFE, Kurt Volker, the newly appointed U.S. representative in Ukraine negotiations, said the conflict resembles a hot war, pointing out that a recent increase in clashes across the Donbass has killed at least nine Ukrainian soldiers within 72 hours.

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Russian Army Arrives at Ukraine Border as US Fears Over 'Hot War' Simmer - Newsweek

The career of Sergei Yeliseyev helps to explain why Ukraine's armed forces gave up Crimea almost without a fightand why NATO now says it is alert to Russian attempts to undermine military loyalty in its eastern European members.

His rise to become number two in the Ukrainian navy long before Russia seized Crimea illustrates the divided loyalties that some personnel in countries that once belonged to the Soviet Union might still face.

Yeliseyev's roots were in Russia but he ended up serving Ukraine, a different ex-Soviet republic, only to defect when put to the test. NATO military planners now believe Moscow regards people with similarly ambiguous personal links as potentially valuable, should a new confrontation break out with the West.

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In 2014, Yeliseyev was first deputy commander of the Ukrainian fleet, then largely based in Crimea, when Russian soldiers in unmarked uniforms took control of Kiev's ships and military bases on the peninsula.

Instead of resisting, Yeliseyev quit and subsequently got a new job: deputy chief of Russia's Baltic Fleet.

Yeliseyev, now aged 55, did not respond to Reuters questions sent to him via the Russian defense ministry.

In Kiev, however, there is no doubt where his loyalties lay. "When he took an oath to Ukraine, these were empty words for him. He has always been pro-Russian," said Ihor Voronchenko, now commander of the Ukrainian navy, who once served with Yeliseyev.

In fact, the Russian soldiers were pushing at an open door in late February 2014Yeliseyev was just one of many to defect and almost all Ukrainian forces in Crimea failed to resist.

Russia annexed Crimea the following month, prompting a major row with the West which deepened over Moscow's role in a rebellion in eastern Ukraine that lasts to this day.

At the time, Moscow and its allies in Crimea exploited weaknesses within Kiev's military to undermine its ability to put up a fight, according to interviews conducted by Reuters with about a dozen people on both sides of the conflict.

The Russian defense ministry did not respond to questions on their accounts of the events in 2014 submitted by Reuters.

One NATO commander told Reuters that, in a re-run of the tactics it deployed in Crimea, Russian intelligence was trying to recruit ethnic Russians serving in the militaries of countries on its borders.

Speaking on condition of anonymity, the commander said the alliance was particularly sensitive to the risk in countries with high concentrations of ethnic Russians, notably the Baltic states.

NATO had to guard against this, said the commander, though the risk should not be overstated because having Russian roots did not necessarily mean that a person's loyalty is to Moscow.

Officials in the Baltic states, former Soviet republics which unlike Ukraine are NATO members, play down the danger.

NATO Secretary-General Jens Stoltenberg likewise said he trusted the armies of the Estonia, Latvia and Lithuania. Still, he told Reuters: "We always have to be vigilant. We always have to develop our intelligence tools and to be able to see any attempts to try to undermine the loyalty of our forces."

Years before the Crimean annexation, a Ukrainian appointment panel appeared to drop its guard when it interviewed Yeliseyev for the deputy naval commander's post.

Yeliseyev was born near Moscow, graduated from a Soviet naval school in the Russian city of Kaliningrad in 1983 and served with the Russian Pacific fleet.

So the panel asked Yeliseyev what he would do if Russia and Ukraine went to war. He replied that he would file for early retirement, according to Myroslav Mamchak, a former Ukrainian naval captain who served with Yeliseyev. Despite this response, Yeliseyev got the job in 2006.

Mamchak did not disclose to Reuters how he knew what was said in the interview room but subsequent events bear out his account.

Relations between Russia and Ukraine dived as Kiev moved closer to NATO and eight years after his appointment, with the countries on the brink of conflict over Crimea, Yeliseyev stayed true to his word by quitting.

Russia's actions were not the only factor in the Crimean events. Ukraine's military had suffered years of neglect, there was a power vacuum in Kiev after the government was overthrown, and many Crimean residents felt more affinity with Moscow.

Still, Ukrainian service personnel with Russian ties switched sides when the annexation began and some officers pretended to put up resistance only to avoid court-martial. Moscow also intercepted orders from Kiev so they never reached the Crimean garrison.

"There was nothing spontaneous. Everything was organized and each fiddler played his role," said Mykhailo Koval, who at the time was deputy head of the Ukrainian border guard and is now deputy head of the Security Council in Kiev.

Voronchenko, who was another deputy commander of the navy at the time of the annexation, said he had received invitations to defect to Moscow's side soon after the Russian operation began.

These, he told Reuters, came from Sergei Aksyonov, who was then head of Crimea's self-proclaimed pro-Russian government, as well as from the commander of Russia's southern military district and a deputy Russian defense minister.

Asked what they offered in exchange, Voronchenko said: "Posts, an apartment ... Aksyonov offered to make me defense minister of Crimea." Neither Aksyonov nor the Russian defense ministry responded to Reuters questions about the contacts.

Voronchenko, in common with many other senior Ukrainian officers, had been in the Soviet military alongside people now serving in the Russian armed forces. He had spent years in Crimea, where Russia leased bases from Ukraine for its Black Sea fleet after the 1991 break up of the Soviet Union.

"Those generals who came to persuade me ... said that we belong to the same circle, we came from the Soviet army," he said. "But I told them I am different ... I am not yours."

Naval chief Denis Berezovsky did defect, along with several of his commanders, and was later made deputy chief of the Russian Black Sea fleet.

Many in the ranks followed suit. At one Ukrainian signals unit, service personnel were watching Russian television when President Vladimir Putin appeared on the screen.

"To my surprise, they all stood up," said Svyatoslav Veltynsky, an engineer at the unit. "They had been waiting for this." The majority of the unit defected to the Russian side.

Even those willing to resist found themselves in a hopeless position. One member of the Ukrainian border guards told Reuters how his commander had despatched their unit's ships to stop them falling into Russian hands, and ordered his men to train their rifles on anyone trying to enter their base.

However, the base's military communications were not working, having been either jammed or cut by the Russians. Isolated from his own side, and outnumbered and outgunned by Russian troops outside, the commander struck a deal with the head of a Russian special forces unit.

Pro-Russian civilians were allowed to force the base's gate without reprisals. The Ukrainians "supposedly could not do anything; you cannot shoot civilians", the member of the unit said on condition of anonymity because he is still living in Crimea and feared repercussions.

Russian troops then followed the civilians in, taking over the base and offering the unit a chance to switch allegiance to Russia. About half agreed, although the base's chief refused and was allowed to leave Crimea.

"The commander did not resist," said the unit member. "On the other hand, he did what he could under the circumstances."

Two other people involved in the annexationa former Ukrainian serviceman now on a Russian base in Crimea, and a source close to the Russian military who was there at the timealso described witnessing similar faked confrontations.

"You have to understand that the seizure of Ukrainian military units in Crimea was just a show," said the source close to the Russian military.

NATO's Baltic members differ significantly from Ukraine. Soviet-era commanders, for instance, largely left their armed forces after the countries joined the Western alliance in 2004.

Officials also point out that Russian speakers were among the seven members of Latvia's forces to die during international deployments to Afghanistan and Iraq.

Nevertheless, lessons have been learned from Crimea. "We learned, of course, that there was not only the issue of loyalty, but also false orders were submitted and there was a blockage ofcommunication during the Crimea operation," said Janis Garisons, State Secretary in the Latvian defense ministry.

Latvia has changed the law so that unit commanders are obliged to resist by default. But Garisons said the simplest step was taken long before the annexation, with the introduction in 2008 of vetting by the security services for "everybody who joins the armed forces, from private to general".

See the article here:
How Russia Took Crimea Without a Fight From Ukraine - Newsweek