Dollar-denominated Ukrainian Eurobonds surged in price after the Democratic Party’s victory in the United States midterm elections on 3 November. Investors are counting on continued American military support.
Price rise for bonds with a 4.5% coupon maturing in 2034
On Wednesday 4 November, sovereign Eurobonds with a 4.5% coupon maturing in 2034 rose by more than one cent — to above 63 cents per dollar of face value. This is the highest level for these papers in more than a month.
A price of 63 cents means the bonds are trading at roughly 63% of face value. Despite the rise in quotes, investors continue to factor in significant risks related to the war and Ukraine’s future debt payments.
Market reaction to the results of the US midterm elections
In the 3 November midterms, the Democrats won majorities in both chambers of the United States Congress — the House of Representatives and the Senate — changing the balance of political power in Washington. For holders of Ukrainian Eurobonds this prompted a reassessment of expectations about continued support for Kyiv.
Investors hope the new Congress will help prevent disruptions in the sharing of intelligence and preserve access to military technologies. Viktor Sabo, investment director at Aberdeen Investments, said reports of Russian attacks on energy infrastructure had previously weighed on Ukrainian assets, but the election results have changed market sentiment.
Uncertainty and expert risk assessments
Despite the positive market reaction, Washington’s future policy towards Ukraine remains uncertain. It is unclear how the new balance of power in Congress will affect peace negotiations and decisions by President Donald Trump on the war.
Neil Shearing, chief economist at Capital Economics, suggests that constraints on the US president’s influence over domestic policy may prompt him to act more actively on the international front. In his view, one cannot rule out attempts to accelerate negotiations to end the war, which could create additional risks for Ukraine and increase Europe’s need for defence funding.
The rise in quotes reflects improved short-term expectations among some investors about Ukraine’s prospects, but this applies to the secondary market and does not automatically increase the country’s public debt. The further trajectory of Ukraine’s debt will depend on the security situation, international financial assistance and the prospects for ending the war.
