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Ukraine’s bonds tumbled in price on Monday as investors dialled back their bets that Russian President Vladimir Putin will accept a US-brokered ceasefire in his country’s war with its neighbour.
Debt geared to a rapid postwar economic recovery in Ukraine dropped to the lowest levels in months after US President Trump said on Sunday he was “very angry” with Putin for putting further conditions on talks to end the three-year conflict.
Kyiv’s dollar bond maturing in 2036 and offering extra payments linked to GDP growth dropped 3 cents to 54 cents on the dollar, having risen to nearly 70 cents just before US-Russian talks began last month.
Meanwhile, older GDP-linked securities issued by Ukraine fell by about 3 cents to below 72 cents on the dollar, or where they traded when Trump was elected president in November.
The drop in bond prices partly reflected Russian “slow-balling” of talks in recent days, although a tougher US line with the Kremlin on peace terms was not necessarily bad for the debt in the long run, said Roger Mark, fixed-income analyst at asset manager Ninety One.
“Before this weekend if felt like we were drifting in the direction of Trump forcing a deal on Ukrainians that would be very pro-Russian . . . [and] would be bad for Ukraine and recovery values,” Mark said.
Last year, holders of more than $20bn in dollar bonds gave Kyiv debt relief, including a 37 per cent direct writedown, in return for potential higher repayments in the years ahead if Ukraine’s GDP beats IMF forecasts.
The bonds and warrants had rallied strongly in recent months on hopes that the US president would bring a quick end to the war, boosting the chances of growth-linked payouts on the debt.
However, Russia set sweeping conditions on a US proposal last week for a partial ceasefire in the Black Sea and on attacks on energy infrastructure. It has continued missile and drone strikes on Ukrainian cities in recent days.
The IMF warned last week that Ukraine’s growth was set to be lower than previously forecast this year because of damage to its energy infrastructure. The fund also underlined “exceptionally high uncertainty” over how long the war will last, as it approved the latest tranche of a $15bn-plus bailout.
The sell-off in the bonds has been magnified by hedge funds who bought at higher prices recently and have been forced to sell by their internal risk systems as the bonds fell, Mark added.
“A lot of the move [on Monday] was exacerbated by stop losses,” he said. “A lot of fast money is sitting in negative territory on the trade.”
Investors are also trying to gauge the impact of the renewed US push for control of Ukraine’s natural resources as repayment for military assistance. While a deal could boost the bonds if it buttresses US backing for a ceasefire, creditors are wary that proposed US terms such as a first claim on Ukrainian state revenues could weaken their own claims.
The terms were “a major negative for those holding Ukrainian bonds and warrants”, said Maximilian Hess of Aurora Macro Strategies.
“This deal is a long way out to being agreed upon, but if it were, it would essentially make bond and warrant holders claims junior, in addition to making Ukraine an American vassal.”
