Trump's "alternative" asset: Ukrainian Dollar Bonds

With the market betting heavily on the "Trump trade", fund managers have started buying Ukrainian dollar bonds, as they are betting that Trump's victory will accelerate the end of the Russia-Ukraine war.

This month, the return rate of Ukrainian bonds is close to 6%, the best performance among global emerging markets, with bond prices at nearly 50 cents for various maturities.

Warrants linked to the performance of the Ukrainian economy are trading at over 70 cents, the highest level since plunging to 15 cents in 2022.

Dmytro Bozhko of Dragon Capital in Kyiv stated that funds have been betting that after Trump's victory, the Russia-Ukraine war will cease more quickly.

"This bet is quite common in the market, especially the attention on the CoCo bonds due in 2035 and 2036."

At the end of August, bondholders reached an agreement with the Ukrainian government to restructure $20 billion in defaulted debt, boosting investor bullish sentiment.

Prospects of Trump's victory may accelerate ceasefire negotiations between Russia and Ukraine

According to CCTV, on July 19th local time, Trump had a phone call with Ukrainian President Zelensky to discuss the Russia-Ukraine situation.

Trump has previously stated multiple times that if re-elected as U.S. President, he plans to "end the Ukrainian crisis in one day," but it is currently unclear how he will resolve it.

Thys Louw, portfolio manager at Ninety One UK Ltd., stated:

"The market is starting to digest the possibility of accelerated peace talks. This prompts Ukraine to reassess the situation to avoid falling into a bad scenario."

"We last bought before the restructuring agreement." Kieran Curtis, investment director at Abrdn in London, said, "This has nothing to do with Trump, I still think our intuition is that if Trump wins, Ukraine will be sold off."

Bank of America Securities also recommends buying Ukrainian bonds, stating that their valuation offers an asymmetric positive risk-return profile. At the end of last year, Europe's largest asset management company Amundi SA stated that Ukrainian bonds are one of its top picks for 2024, partly because the prospect of Trump's victory may force Ukraine to engage in ceasefire negotiations with Russia.

Kaan Nazli of Neuberger Berman is skeptical of Trump's dealings on the Ukrainian issue, stating:

"Trump and Vance's victory seems to trigger an optimistic expectation that there will be a new round of ceasefire negotiations between Russia and Ukraine, which is somewhat exciting.

However, I believe this optimism is misplaced. The differences between the two sides are significant, and Russia's demands on Ukraine are very stringent."