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Ukraineâ€s sovereign bonds have surged in price as investors bet that the incoming US administration will push for a quick end to the war with Russia.
The dollar-denominated bonds have risen 12 per cent in the past month, in expectation that the re-election of Donald Trump will lead to a ceasefire and boost Ukraineâ€s capacity to repay creditors.
The jump in the price of Ukrainian bonds, which one investor in the country called “the unlikeliest Trump trade everâ€, comes as bets relating to the new administration have swept global financial markets in recent weeks.
Trump has said he will end the war in Ukraine “within a day†of returning to the White House, though he has not offered specifics on how this would be achieved.
The rally has come just over two months after Kyiv completed a restructuring of more than $20bn of debt in one of the fastest and biggest sovereign debt workouts in modern history.
Bond investors are betting that the country will be prepared to accept a peace deal that involves permanently giving up territory it has lost in the war, and that its economy will recover quickly in the years ahead.
“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, which owns some Ukrainian bonds.
Among investors to own significant holdings of Ukrainian debt is fund manager BlackRock, which was a member of the bondholder committee that led the restructuring talks. BlackRock declined to comment.
Ukrainian debt has outperformed emerging market indices since mid-October, when markets began to price in a Trump election victory.
Ukraineâ€s bond maturing in 2036 has risen from 44 to 49 cents on the dollar over the past month. So-called “GDP warrants†— debt securities issued under an older debt restructuring that will benefit from the countryâ€s return of growth — having climbed even more sharply.
A bond owed by Ukrenergo, Ukraineâ€s state grid operator, has rallied more than 160 per cent this year to 67 cents on the dollar, despite renewed Russian attacks on infrastructure.
London-based hedge fund firm Shiprock Capital has profited from the jump in the warrants and Ukrainian corporate debt and is up 31 per cent this year to the end of October, according to an investor letter seen by the Financial Times.
Shiprock did not respond to a request for comment.
During the early stages of the war, bondholders agreed to a halt on Kyivâ€s interest payments. The September restructuring, which is designed to pave the way for Ukraineâ€s return to bond markets, ended the two-year freeze.
Under the September deal, investors agreed to take losses of more than a third on their bonds to help Ukraine control its surging wartime deficits — years before official creditors such as the UK, the US, Germany and Japan are set to restructure their own debts.
In return for agreeing to accept upfront losses, bondholders were also given the chance to receive higher payouts if Ukraineâ€s war-ravaged economy beats growth targets in the years ahead.
Some investors have cautioned that the outlook for Ukraineâ€s bonds is far from clear.
Mohammed Elmi, a portfolio manager at Federated Hermes, said he was sceptical of the marketâ€s belief in Trumpâ€s ability to secure a rapid peace deal.
“I donâ€t fully subscribe to that kind of bullish view,†he said. “There is still a significant amount of unanswered questions†about where a settlement would leave Ukraineâ€s postwar economy and whether it would be a priority for the new US administration.
“Trump has a lot to do, with a big policy agenda to go through. These negotiations could also be quite prolonged,†he said.
