The prices of Ukrainian government bonds rose sharply, as investors believe that the new US administration will be able to quickly contribute to the end of the war with Russia, writes Financial Times
During the last month, the value of Ukrainian bonds in dollars increased by 12%. The reason for this increase is the expectation that the return of Donald Trump to the White House will lead to a truce, which will increase Ukraine’s ability to repay debts. One investor described it as the most unexpected bet on Trump. Such assumptions about the policy of the new administration caused a wide reaction in the world financial markets.
Trump has repeatedly stated that he will end the war in Ukraine “in one day” after returning to the presidency, although he did not announce a specific plan.
This increase in the value of the bonds came just two months after the restructuring of more than $20 billion of Ukraine’s debt was completed, one of the largest and fastest restructuring procedures in history.
Investors are betting that Ukraine can agree to a peace deal that would involve the loss of some territories, and that the country’s economy will recover quickly in the coming years.
“The main factor behind the increase was the hope for the end of the war, or at least the beginning of negotiations with the participation of Trump“, said Tys Lowe, manager of Ninety One, which owns Ukrainian bonds.
Among the large investors in Ukrainian debt is BlackRock, which participated in debt restructuring negotiations. The company declined to comment.
Ukrainian bonds have outperformed emerging market indices since mid-October, when the market began to factor in a possible Trump victory. Ukraine’s bond maturing in 2036 rose from 44 to 49 cents on the dollar, and so-called “GDP warrants” — securities that benefit from the growth of Ukraine’s economy — rose even more.
The bond of Ukrenergo, Ukraine’s state-owned energy grid operator, has risen more than 160% this year to 67 cents on the dollar, despite Russia’s renewed attacks on infrastructure.
London-based hedge fund Shiprock Capital profited significantly from the growth of Ukrainian warrants and corporate debt and recorded a gain of 31% as of the end of October. Shiprock had no comment.
At the beginning of the war, bondholders agreed to suspend interest payments to Kyiv. The September restructuring ended a two-year hiatus in payments and gave Ukraine the opportunity to re-enter the bond market.
As part of the deal, investors agreed to write off more than a third of the debt to help Ukraine control its growing wartime deficit. This happened long before the official creditors, such as Great Britain, the United States, Germany and Japan, began to restructure their debts for Ukraine.
Investors who accepted these losses were given the opportunity to receive higher payouts in the future if the Ukrainian economy exceeds growth targets.
At the same time, some investors are cautious about the prospects of Ukrainian bonds. Mohammed Elmi, a portfolio manager at Federated Hermes, doubts Trump’s ability to bring peace quickly.
“I do not support an overly optimistic view. There are still significant questions about the future of the Ukrainian economy after the war and the priorities of the new US administration. Trump will have to focus on numerous domestic policy issues, and these negotiations may drag on“, he noted.
