The Trump-driven bet on Ukraine's dollar bonds is collapsing.
The bet that Trump's second presidency would bring peace to Eastern Europe is crumbling in real time. Investors who bought Ukraine's dollar bonds in early 2025, convinced that Trump would quickly end the war with Russia, have suffered losses of over 10%, turning those bonds into the worst performers in all emerging and frontier markets this year, according to Bloomberg.
What started as a hopeful rebound is rapidly crumbling. In January, the same bonds were rising strongly. Some had almost doubled in price after Ukraine's debt restructuring in August of last year. Traders saw Trump's return to the White House as key to peace.
But that bet is sinking as the war enters its fourth year, and there is no ceasefire in sight. Market optimism began to fade after Trump's highly publicized attempt to organize direct talks with Vladimir Putin and Volodymyr Zelenskiy in Istanbul.
Putin withdrew and sent low-level aides in his place. Zelenskiy appeared. And absolutely nothing came of it.
Investors pull back as hopes for peace collapse.
Even after that failed trip to Istanbul, Trump continued to push for another meeting, this time at the Vatican. But on Friday, Russian officials dismissed it, calling the idea unrealistic. The Kremlin's refusal made it clear to the markets that the end of the war was not near.
That's when the price drop really started to take effect. Some of Ukraine's zero-coupon bonds maturing in 2035, which only pay based on the country's economic performance, have fallen from 70 cents in February to just 50 cents now.
Viktor Szabo, head of investments at Aberdeen Investments, said the whole situation has changed course: 'The market has returned to levels seen before Trump's election. The promise of delivering peace a day after the inauguration met the reality that Putin does not want peace.'
Not everyone has completely abandoned Ukraine. Bank of America still recommends overweighting Ukraine's external debt. But even they warned of 'downside risks' due to the ongoing conflict. Meanwhile, Morgan Stanley does not expect peace in 2025 at all. And hedge funds are changing tactics.
Martin Bercetche, who manages money at Frontier Road in London, said they now prefer Ukrainian corporate bonds, considering them less exposed to chaos. 'The main impact of delays in peace talks has obviously been seen in Ukraine's sovereign bonds,' Martin said. 'An investment in those bonds is based on some kind of ceasefire or resolution of the conflict.'
Eastern Europe wins while Ukraine sinks.
As the Ukrainian market collapses, the countries around it are gaining. What's the reason? Panic. European leaders think Trump could withdraw U.S. support from NATO or abandon the peace table altogether, so they are investing in their own armed forces. Germany and others have committed hundreds of billions of euros to defense, and that is raising asset prices across the region.
Warsaw, Prague, and Budapest are leading the way. Each of their stock indices has risen over 30% in dollar terms this year. Their currencies—the forint, the crown, and the zloty—are also among the best performers in 2025. Only the rebound of the Russian ruble has surpassed them.
Still, political pressure does not relent. Elections in Poland and Romania keep investors on edge. Viktor Orban, the Prime Minister of Hungary and a close ally of Trump, said delays in the peace process will leave economic scars that will extend to 2026. The statement has raised concerns that the region could face more instability if peace talks remain stalled.
The case of Ukraine is an anomaly and a lesson in caution. Although investors are not ready to give up completely, the environment has clearly changed. The Trump-driven rally is over. And without real progress on the ground, bond losses may not be over yet.
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