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By Todd Shriber & Tom Lydon

Political conflict in Ukraine has claimed nearly 80 lives, while fighting between police and anti-government protesters is also punishing the country's sovereign debt.

Ukraine bonds did rally Friday with short-term bonds due in June jumping to 96 cents on the dollar from just over 93 cents on Thursday. However, considerable damage has been done as Standard & Poor's slashed its rating on Ukraine to CCC from CCC+ with a negative outlook. Bloomberg reported citing a statement by S&P:

"We now believe it is likely that Ukraine will default in the absence of significantly favourable changes in circumstances, which we do not anticipate."

The ratings agency added political tensions in Ukraine put;

"the government's capability to meet debt service at increasing risk, and raises uncertainty regarding the continued provision of Russian financial support over the course of 2014."

Ukraine's currency, the hryvnia, is off 10% year-to-date, worsening the country's current account deficit at a time when some investors are concerned with Ukraine's dwindling foreign currency reserves.

The Ukraine crisis and the Russian central bank's reluctance to defend the ruble to the satisfaction of international investors has also plagued Russian assets. Although it is up more than 4% this month, the Market Vectors Russia ETF (NYSEARCA:RSX) lost 3.1% from Feb. 14 through Feb. 20.

Some emerging market bond ETFs featuring decent-sized combined allocations to Russian and Ukraine have held up as well as could be expected. Not including Friday's gains, the iShares Emerging Markets High Yield Bond ETF (BATS:EMHY) is up nearly 2% this month.

That is no small feat, considering EMHY's combined 8.3% weight to Russian and Ukraine debt. EMHY also features a 3.8% weight to Hungarian bonds, notable because Hungarian assets have also been pressured by crisis in Ukraine. The $180 million EMHY has a 30-day SEC yield of 7.1% and an effective duration of 5.47 years.

The Vanguard Emerging Markets Government Bond ETF (NASDAQ:VWOB) is up nearly 1% this month, arguably impressive considering the ETF's 13.7% weight to Russia and combined 3.4% allocation to Hungary and Ukraine. The average duration on VWOB's 543 holdings is 6.2 years with a yield to maturity of 5.3%. VWOB was one of the most successful ETFs launched in 2013, racing to almost $200 million assets under management as of the end of January.

The Powershares Global Short Term High Yield Bond Portfolio (NYSEARCA:PGHY) is off 0.4% this month, in part due to a combined 13.2% weight to Russia and Ukraine. However, that is well below the 21.4% the two countries combined for in the ETF in September 2013.

As its name implies, PGHY is a high yield ETF with over 80% of its portfolio rated BB, B or CCC by S&P as of the end of 2013, according to PowerShares data.

PGHY's low effective duration of 1.59 years helps the fund cope in a rising rate environment. Duration is a measure of a fund's sensitivity to interest rate changes, and high durations will have a greater negative impact on an ETF's performance as interest rates rise.

Source: Some EM Bond ETFs Surviving Ukraine Conflict