Ukraine widens amid political turmoil

Political turmoil in Ukraine has driven its CDS spreads to the widest levels in almost four years as the government resisted calls for it to step down.

A no-confidence motion was defeated in parliament today, meaning that the government survives to fight another day. But the protests that began a week ago - prompted by the government walking away from a deal for closer integration with the EU -- show no sign of dissipating.

Ukraine's spreads are now trading at around 1,100bps, well over 500bps wider than where they quoted in the first quarter of this year. In addition to political risk, concerns over QE tapering in the US have affected the weaker emerging market sovereigns and have no doubt contributed to the widening in Ukraine's spreads. But it should be noted that this is nowhere near the levels seen in 2009, when Ukraine was trading in excess of 2,000bps and the threat of default was real.

In developed markets, the tone was cautious ahead of crucial US data due later this week. In particular, the non-farm payrolls report will help determine expectations on the timing of QE tapering. At the moment, the consensus is for a March 2014 taper, but a very strong jobs report could bring the December scenario back into play.

The Markit iTraxx Europe was 3bps wider at 81bps, while the Markit CDX.NA.IG was 1bp wider at 70.5bps. Stronger than expected sales figures from Ford and Chrysler may have limited the damage in the US.

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