Schism Over War Hits Ukrainian Bonds

ReutersProtesters gathering as U.S. Coast Guard cutter Dallas arrives Monday in the Ukrainian Black Sea port of Sevastopol.
Ukrainian bonds fell, pushing the 10-year yield to a record high, amid concern that the government may collapse.

Prime Minister Yulia Tymoshenko and President Viktor Yushchenko's "different views" on last month's war between Russia and Georgia may spell the end of the coalition that holds power in Ukraine, Viktor Baloha, Yushchenko's chief of staff, said Monday.

Yushchenko's office said Tymoshenko did not condemn Russia's actions against Georgia because she wants the country's support in the 2010 presidential elections.

"Further noise about the government and its possible collapse doesn't help the situation," said Ali Al-Eyd, an emerging-markets fixed-income strategist in London at Citigroup. "People are seeking clarity, and until they get that, asset prices in the Ukraine will continue to be sensitive."

The yield on Ukraine's 4.95 percent note due 2015 advanced 7 basis points to 9.43 percent, the highest level since the security was issued in October 2005. The 6.88 percent note due 2011 yielded 8.20 percent, up 14 basis points and the highest since May 2004.

Yushchenko and Tymoshenko have feuded over domestic issues, including Russia's Black Sea Fleet, based in Sevastopol, since 2005, when they joined forces in the Orange Revolution.

Yushchenko's office has accused her of "high treason" for not condemning Russia's invasion of Georgia and has asked the country's security agency to investigate Tymoshenko's links to Russia.

Baloha said Tymoshenko's "amorphous position" on Russia's recognition of the independence of South Ossetia and Abkhazia, a move condemned by Europe and the United States, was "another crack in the coalition." Tymoshenko rejected the accusation, saying she supported Georgian territorial integrity.