Following in Russia's footsteps?

If the local currency T-bill market is a good indicator of a country's financial health, Ukraine is seriously unwell. Known locally as OVDPs (in Russian OVGZs) they are hryvna-denominated zero-coupon notes that are held by the National Bank of Ukraine (NBU) in a dematerialized form. Maturities on all notes are 12 months or less. Total capitalization in the T-bill market was about $5 billion at the start of this year and even after the Asian crisis last year, Ukrainian T-bills were seen by foreign investors as an attractive play. They still own around $580 million worth.

The major buyers included off-shore hedge funds and such investment banks as Merrill Lynch, Warburg Dillon Read, ING Barings and Credit Suisse First Boston. Last year, before the Asian crisis, yields fell to as low as 18%. New T-bill issues were easily oversubscribed and an increasing number of foreign fund...