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Ukraine headed for a standoff between its two most powerful politicians after Prime Minister Arseniy Yatsenyuk defied President Petro Poroshenko's call for his resignation and defeated a no-confidence motion in parliament, Bloomberg reported.
The result threatens to conserve political gridlock that's jeopardizing the economy and billions of dollars of foreign aid, Bloomberg notes.
Ukrainian government bonds had pared losses after Poroshenko's comments, when he also sought the removal of Prosecutor-General Viktor Shokin. Shokin later in the day submitted his resignation, Mustafa Nayem, a member of the presidential party, said on Twitter. The yield on notes due 2019 fell 15 basis points to 10.98% early Wednesday after jumping as high as 11.65% the previous day, according to the report.
Yields surged last week as International Monetary Fund Managing Director Christine Lagarde warned the nation's bailout may be halted by political infighting. A $1.7 billion disbursement from the Washington-based lender has been delayed since last year, holding up other bilateral aid.
The escalating political crisis adds to headwinds for Ukraine. The economy also remains fragile as it recovers from an 18-month recession, with the hryvnia losing 10% this year. Trade with Russia has been ravaged since the street protests toppled Ukraine's pro-Kremlin leader in 2014. Russia is also threatening legal action over a $3 billion bond that Ukraine defaulted on after restructuring attempts failed, according to the report.
Poroshenko and Yatsenyuk had previously sought to convey unity after Economy Minister Aivaras Abromavicius and Deputy Prosecutor General Vitaliy Kasko quit amid accusations ruling-party officials were blocking reforms. JPMorgan Chase & Co. and Bank of America raised their recommendations on Ukrainian debt to overweight late last week, saying the market was overplaying the risk of early elections. Franklin Templeton, Ukraine's biggest bondholder, was said to be holding onto its investment, according to Bloomberg.