With a 150% bond rally, Ukraine shows it can beat the odds

Investors are throwing their support behind Ukraine and pocketing some of the most lucrative gains in bond markets.

The country’s resiliency on the battlefield against steep odds, along with billions in fresh European aid and restructuring deals with creditors, add up to a new sense of confidence that’s powering Ukraine’s bond prices higher. Since the start of 2023, an index of the debt has returned 150% and this year is shaping up to be another run of double-digit gains.

“These drones have helped defend the Ukrainian front line,” said Roger Mark, an analyst at Ninety One Asset Management in London. “That’s just fundamentally altered the narrative from a year ago from ‘this country’s losing the war and we don’t know what the funding outlook is looking like’ to ‘this is a country that now has funding secured and if anything, might actually be winning’.”

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Skeptics warn that the peace talks are still sputtering and winter could turn the war in Russia’s favor if the Kremlin intensifies its bombing campaign and once again plunges Kyiv and other cities into darkness. There’s also an argument that the Ukrainian bond rally has been inflated by investors rushing headlong into all kinds of risk. But emerging-market fund managers say that despite the drawbacks, Ukraine is a high-octane bet too tempting to ignore.

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Of course, Ukraine is not your average bond market. Only the specialists adept at navigating restructurings tend to trade this kind of speculative and less liquid debt. Prices don’t move in line with mainstream markets, which have been selling off on worries about inflation and rising levels of debt worldwide.

Ukrainian bonds, instead, essentially behave like a one-way bet on whether the country can eventually negotiate an end to the war and revive its economy. Take the country’s notes due in 2029, currently yielding 13%. They trade around 85 cents on the dollar. Back in June 2025, the bonds were deeply distressed at 58 cents.

Even though prices have wobbled in the past month, the returns are still better than last year. Ukraine’s sovereign bonds have risen 12% so far in 2026, according to a Bloomberg index tracking nine dollar-denominated securities. In 2025, the gauge was up 10%.

Investors believe Ukraine has bought itself more time and a stronger negotiating hand with its surprise wins on the battlefield. And just as important, Europe is showing a willingness to step into the gap left by the US, with policymakers approving a €90 billion ($106 billion) loan to Ukraine earlier this year.

“Ukraine is militarily doing a lot better and shown a lot of adaptability in drone technology,” said Anthony Kettle, an emerging-markets fund manager at RBC BlueBay. “What it lacks in manpower, it has made up for in technical nous.”

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Ukraine hits Russian refineries as Kyiv faces missile barrage

As a result, the extra yield that Ukrainian bonds pay over Treasuries has shrunk dramatically. The spread is around 7.4 percentage points, according to a JPMorgan Chase & Co index, about 2.5 percentage points less than in January. Corporate debt has also done well, with bonds from Metinvest NV returning 31% this year and those from energy firm Naftogaz up 23%.

That rapid rally is a red flag, says Daniel Wood of William Blair International. Ukraine has been running out of the missiles it needs to defend itself against Russia’s intensified attacks, and airstrikes on the Black Sea ports look set to halve this year’s grain exports, a mainstay of the economy.

“Ukrainian bonds are a little overpriced,” said Wood, who has taken his position down to neutral. “There is perhaps too much optimism priced into the market.”

Ukraine is going through its own internal power struggles. Mykhailo Fedorov, the country’s popular ex-defence minister, has strongly hinted at his political ambitions with a video calling for wartime elections. Lawmakers also approved a new defence minister on Wednesday.

Then there’s the question of how the country will pay back all the debt it’s taken on. Even with the strong backing of its allies, it’s difficult to make any accurate forecasts about Ukraine’s funding needs, said Pavel Mamai, co-founder of ProMeritum Investment Management. The country’s debt load is more than its annual economic output, the Kyiv School of Economics estimates, with that ratio expected to reach 110% by 2027.

Taken together, the bonds are a bold bet with potentially a lot of upside, according to Matthew Vogel, head of EM strategy at Marex. Even though Ukraine is heading into a dangerous stretch, he still sees good reasons for investors to keep owning the debt.

“The opportunity cost of not being involved is massive,” Vogel said. “The outlook is fraught with risk,” but “that’s why we’re at a 12% yield and not at a 10% or a 9% yield,” he added.

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