News that Ukraine’s government plans to hold “discussions” with bondholders has been widely interpreted as a precursor to some form of default, and dollar bond yields have jumped accordingly in recent weeks. It’s hardly surprising that Ukraine has arrived at this point. We’ve argued before that a default looked almost inevitable and that the real question was what form it might take. So far, the signs are that restructuring will be fairly orderly. It seems that the government wants to renegotiate the terms on debt payments rather than stop them altogether. And any default is likely to happen under the auspices of an IMF programme. The upshot is that while there’s no end in sight to Ukraine’s economic woes, at least the fallout from any default should be limited.
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