Buy Ukrainian War Bonds

By Olena Harmash

KYIV (Reuters) – "Buy new bonds. It's like a donation," lawyer Olesia Mykhailenko urged her nearly 14,000 social media followers to purchase Ukrainian war bonds, sharing a screenshot of her own bond portfolio on X.

Mykhailenko, an early retail investor in Ukraine's domestic debt, joined broader government efforts to encourage citizens to fund the war with Russia. "This is a way to help the state, and also a way to protect your hryvnias from inflation," she explained.

Speaking from a cafe in central Kyiv, she noted that many of her followers had heeded her advice, investing in war bonds—a common fundraising method during major conflicts. The urgency for residential bond purchases has increased as the war approaches its 32nd month.

The protracted conflict has driven up costs, and Ukraine needs an additional $12 billion to finance its defense sector by the end of the year. With international bond markets closed to Ukraine due to a "selective" default rating from S&P, the government agreed to restructure over $20 billion of international debt, saving $11.4 billion over the next three years.

The finance ministry reported that domestic borrowing more than doubled in September, raising 72.4 billion hryvnias ($1.8 billion) from treasury sales, including 28.9 billion from war bonds.

Given a projected budget deficit of around $38 billion for 2025 and diminishing foreign aid, raising debt domestically remains crucial.

Citizens and Banks Invest

Commercial banks are the primary buyers of state debt, but residents and businesses have increasingly invested in war bonds since Russia's full-scale invasion began. The finance ministry stated that the investment from individuals soared to 71.2 billion hryvnias ($1.7 billion) by early October, up from 25.5 billion ($622 million) in February 2022.

Historically, retail investors in Ukraine’s domestic debt were limited to the financial sector, with investments hovering around just 100 million hryvnias in 2016. The war has significantly changed this dynamic, leading to increased access.

Taras Kotovich, a senior analyst, remarked, "It was a very serious push; with the start of the war all commissions and requirements on minimal amounts were removed." Bonds can now be purchased online effortlessly, imbued with wartime symbolism as they bear the names of Ukrainian cities occupied by Russian forces.

In addition to patriotism, these bonds offer attractive yields of 15% to 18% for hryvnia-denominated paper and over 4% for dollar-denominated paper, along with tax exemptions. Discussions on a potential increase in war taxes on profits from deposits may enhance the appeal of the bonds.

Foreign investors also participate; they represented about 1.4% of the treasury portfolio at the start of October, with activity notably from Japan, Germany, and the United States. Kotovich noted that Ukrainians primarily prefer short-term bonds, usually starting with small investments and often reinvesting after accruing their first coupon payments.

The investor demographic ranges widely, including students, soldiers, state officials, and IT specialists. Mykhailenko shared that her father made his first investment in bonds at age 56.

The rising interest in bonds has prompted banks and investment firms to launch apps and other tools to facilitate purchases for retail investors. Last month, the central bank also approved changes to simplify investment in state debt.