Page 34 - Ukraine OUTLOOK 2025

“We think they will adjust down by 100-150 basis points from current levels by the end of 2025,” experts noted. Yields on one-year government bonds are projected to decline from the current 14.7% to approximately 13.5% by the end of next year.
During the 1,000 days of the Russian Federation's full-scale invasion, UAH1.36 trillion ($36.8bn) was obtained for Ukraine's state budget through the issuance of OVDP. During this time, investments from individuals increased by 180%, from UAH25.5bn in circulation as of February 24, 2022 to UAH72.61bn as of November 19, 2024.
Ukraine’s B bonds rally on ceasefire and reconstruction expectations.
Ukraine continues to face an enormous problem of how to pay for the reconstruction of the country. Russia has inflicted between $500bn and $1 trillion worth of damage, according to various estimates, with at least $200bn worth of damage to physical assets. Yet, cut off from using the frozen $300bn in frozen CBR money, there is still no concrete plan to fund the reconstruction work.
Amongst one of the few possible sources of investment capital is the Ukrainian domestic debt market, which was already responding to the growing expectations of a ceasefire in 2025 at the end of 2024.
Ukrainian sovereign bonds offering no cash flow until 2027 emerged as a standout investment in the volatile emerging markets arena in December, bolstered by mounting speculation that a ceasefire in the war with Russia could edge closer under a Donald Trump presidency.
Since Trump’s election victory, Ukrainian bonds have led emerging-market rankings, driven by optimism surrounding potential conflict resolution and reconstruction efforts. Among the rallying securities, Ukraine’s 2035 "B bonds" – trading at approximately 59 cents on the dollar – gained the most attention. The notes, up 10 cents since Trump’s win, outpace similar 2035 maturities with earlier coupon payments, priced at 54 cents, Bloomberg reported in December.
Similar to the GDP warrants issued in 2015 as part of a debt restructuring deal, the appeal of the "B bonds" lies in their unique design. These securities feature a clause that triggers larger capital payments if Ukraine’s economic recovery exceeds International Monetary Fund (IMF) projections.
While the international dialogue has intensified, talks are still far away as Russia and Ukraine clash over territorial claims and Kyiv’s Nato aspirations. Ukrainian and allied officials remain sceptical of Russian President Vladimir Putin’s willingness to negotiate, given his army’s gains in the conflict.
But a ceasefire is clearly closer than at the start of the year as Ukraine’s position continues to deteriorate, driving the interest in the B bonds.
Bank of America has maintained a “buy” recommendation on the bonds since November 7, citing them as the “best risk reward across the curve,” according to credit strategist Merveille Paja, Bloomberg reported on December 12. Morgan Stanley remains neutral on Ukraine overall but acknowledges “more upside” in the "B bonds" maturing in 2035 and 2036. Major institutional investors, including BlackRock, Royal Bank of Canada and Allianz, have taken prominent positions in Ukrainian bonds, Bloomberg data shows.
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