Ukrainian bonds surge in ‘unlikeliest’ Trump trade, investors believe he can end Russia’s war

Amid US President-elect Donald Trump’s promise to end the war in Ukraine in 24 hours, Ukraine’s sovereign bonds has surged over the past month.

The dollar-denominated bonds have surged by up to 12 per cent over the past month, according to Financial Times.

Bonds maturing in 2036 have risen from 44 to 49 cents on the dollar over the past month and so-called ‘GDP warrants’ have had an even higher surge, as per the newspaper.

The paper reported that a bond owed by Ukraine’s state grid operator Ukrenergo has surged more than 160 per cent this year to 67 cents on the dollar. The surge has happened despite Russia battering Ukraine’s power grid in repeated aerial attacks.

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The surge had begun even before the Election Day as polls put him in an advantageous positions and prediction websites favoured him.

As Trump is expected to pursue a dramatically different trade and foreign policy where he is expected to dramatically use tariffs, his victory has led to concerns around the world. Amid such concerns, an investor told FT that the surge was the “the unlikeliest Trump trade ever”.

Government bonds are a low-risk investment tool as they are backed by the government. Governments issue them to raise debt. They pay periodical interests before paying the principal amount to holders.

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Bond investors are betting that Ukraine will accept the peace deal that Trump will broker, likely involving ceding territory for the end of the war, making way for economic recovery, according to FT.

“The main part of the trade has really been based on the war ending, or at least the possibility of Trump pushing through the start of negotiations,” said Thys Louw, portfolio manager at Ninety One, to the newspaper.

However, not everyone is convinced by the investor’s belief in Trump that’s driving this surge. Mohammed Elmi, a portfolio manager at Federated Hermes, told FT that there are several unanswered questions about how Ukraine’s economy will be by the time the war ends and whether Ukraine would even be a priority for the new administration.

“I don’t fully subscribe to that kind of bullish view,” he said. There is still a significant amount of unanswered questions. Trump has a lot to do, with a big policy agenda to go through. These negotiations could also be quite prolonged,” said Elmi.