Trump-fueled bet on Ukraine’s dollar bonds is collapsing

The gamble that Trump’s second presidency would bring peace to Eastern Europe is blowing up in real-time. Investors who loaded up on Ukraine’s dollar bonds at the start of 2025, convinced Trump would deliver a quick end to the war with Russia, have been slammed with over 10% losses, making those bonds the worst-performing in all emerging and frontier markets this year, according to Bloomberg.

What began as a hopeful rebound is now unraveling fast. Back in January, the same bonds were rallying hard. A few had nearly doubled in price after Ukraine’s debt restructuring in August last year. Traders saw Trump’s return to the White House as the key to peace. 

But that bet is sinking as the war drags into its fourth year, and no ceasefire is in sight. Market optimism started dying after Trump’s highly publicized attempt to host direct talks with Vladimir Putin and Volodymyr Zelenskiy in Istanbul.

Putin bailed and sent low-level aides instead. Zelenskiy showed up. And absolutely nothing came out of it.

Investors pull back as peace hopes crash

Even after that failed Istanbul trip, Trump kept pushing for another meeting, this time at the Vatican. But on Friday, Russian officials shut it down, calling the idea unrealistic. The Kremlin’s refusal made it clear to the markets that the war’s end wasn’t near. 

That’s when the price drop really started to bite. Some of Ukraine’s zero-coupon bonds maturing in 2035, which only pay out based on the country’s economic performance, have dropped from 70 cents in February to just 50 cents now.

Viktor Szabo, investment director at Aberdeen Investments, said the whole situation has reversed course: “The market is back around levels seen before Trump’s election. The promise to deliver peace a day after inauguration was met by the reality that Putin doesn’t want peace.”

Not everyone has completely bailed on Ukraine. Bank of America still recommends overweighting Ukraine’s foreign debt. But even they warned of “downside risks” due to the ongoing conflict. Meanwhile, Morgan Stanley isn’t expecting peace in 2025 at all. And hedge funds are shifting tactics. 

Martin Bercetche, who manages money at Frontier Road in London, said they now prefer Ukrainian corporate bonds, calling them less exposed to the chaos. “The main impact of the delays in peace talks has obviously been seen in Ukraine sovereign bonds,” Martin said. “An investment in those bonds is predicated on some sort of ceasefire or resolution to the fighting.”

Eastern Europe gains while Ukraine sinks

While Ukraine’s market crashes, countries around it are raking in gains. The reason? Panic. European leaders think Trump could pull US support from NATO or leave the peace table altogether, so they’re pouring cash into their own militaries. Germany and others have committed hundreds of billions of euros to defense, and that’s lifting asset prices across the region.

Warsaw, Prague, and Budapest are leading the way. Each of their stock indexes is up more than 30% in dollar terms this year. Their currencies — the forint, koruna, and zloty — are also among the top performers in 2025. Only the rebound in the Russian ruble has outpaced them.

Still, the political pressure isn’t letting up. Elections in Poland and Romania are keeping investors on edge. Viktor Orban, Hungary’s Prime Minister and a close Trump ally, said delays in the peace process are going to leave economic scars that stretch into 2026. The statement has added to worries that the region could face more instability if peace talks keep stalling.

Ukraine’s case is the outlier and a cautionary tale. While investors aren’t ready to give up completely, the mood has clearly shifted. The Trump-fueled rally is over. And without real progress on the ground, the bond losses may not be done yet.

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