LONDON: Russian assets rallied on Thursday after a ceasefire was agreed for eastern Ukraine, with other emerging-market currencies also rising off the multi-year lows they hit the day before.
Leaders of Ukraine, Russia, Germany and France, as well as pro-Russian separatists fighting government forces in east Ukraine, put together the ceasefire deal, following 16 hours of talks in Minsk. It takes effect on Feb 15.
If successful, the ceasefire offers hope for economic recovery in Ukraine. It may also keep the West from extending sanctions on Russia over its role in the conflict.
The rouble firmed 0.7 percent. Russian stocks and bonds saw larger gains.
Russia's dollar-denominated equity index jumped 6 percent . Its March 2030 sovereign Eurobond, one of the most traded emerging-market issues, rallied more than two cents in the dollar to 106.4, a six-week high, according to Tradeweb.
The 2020 bond firmed 1.6 cents. Russia's bond yield spread over U.S. Treasuries narrowed 34 basis points to 567 bps.
"The market is reacting in this way because it is pretty positive news, but I think it is a little bit premature," said Per Hammarlund, head of emerging markets at SEB in Stockholm. "... I think Ukraine could get worse before it gets better."
Ukraine's dollar bonds were broadly unchanged, shrugging off both the ceasefire news and an International Monetary Fund announcement that the country's aid package would be increased to $40 billion
A lasting ceasefire would allow the IMF to start disbursing the aid, but a bail-in for bondholders looks inevitable.
"The IMF has identified a financing gap of $42 billion which has to be filled some way. The way it will be filled is by restructuring Ukraine's debts, hence the need to start negotiations with creditors," Standard Bank analyst Tim Ash said.
In central Europe, Czech and Hungarian stocks rose 2 percent . Istanbul jumped almost 2 percent, despite Greece's failure so far to reach a debt deal with the euro zone.
Shares in Hungary's OTP Bank and drugmaker Gideon Richter, both of which are exposed to Ukraine and Russia, rose 3 and 4 percent respectively.
Budapest-based broker Equilor advised buying shares of OTP, Richter and Western banks such as Raiffeissen and Unicredit that operate in Russia and Ukraine.
The zloty, forint and leu rallied around 0.5 percent to the euro and the lira rose 0.6 percent off record lows versus the dollar. The rand firmed half a percent after dropping near 13-year lows on Wednesday when a rise in U.S. yields back to 2 percent fuelled an across-the-board emerging-markets selloff.
The rand's problems are exacerbated by problems at utility Eskom, whose 2021 dollar bonds are trading at two-month lows
Nigeria's naira was the outlier, falling 1.8 percent to the dollar before electronic trading was halted for the second day in a row. Lagos stocks fell 1 percent.
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