Under heavy siege by Russia, Ukraine is resorting to a familiar means of raising cash to help pay for troops, arms, and munition.
The country’s Ministry of Finance sold some $270 million worth of war bonds on Tuesday, in local Ukrainian currency, to “ensure the uninterrupted provision of the state’s financial needs during the war,” according to a statement.
“We see it as a good outcome, and we’re going to continue further,” Yuriy Butsa, the Ukrainian government commissioner for public debt management, told Bloomberg TV after the sale.
So what exactly is a war bond, and how does it differ from other kinds of bond investments?
The key thing to know is that investors receive a much lower return for their risk. Ukraine offered an 11% yield in exchange for creditors lending them their capital for just one year. That may sound like a juicy return, but inflation is already at 10% in the country.
And the chance of Ukraine missing a payment was already considered to be high before Russian tanks rolled into the country. Ukraine’s conventional dollar-denominated bond maturing in 2032, for example, dropped to a price of just 31 cents on the dollar on Monday, according to the Financial Times, indicating institutional investors were pricing in the expectation they would lose most of their capital.
With hostilities continuing, Ukraine is now effectively locked out of professional debt markets, unable to borrow at rates it can afford. Countries lose access to funding typically…
