Ukraine War Bonds That Pay 11% Are A Risky Bet Investors Want To BuyAdvisor Perspectives
The war bonds pay 11%, even higher than the ultra-popular U.S. inflation-protected debt that earns 7.12%.
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But unlike those American savings bonds, Ukraine’s debt comes with significant risk as Russia proceeds with its invasion of the country. Some retail investors are willing to take on that risk — and earn that double-digit payout — but right now that’s easier said than done.
They are scouring investment forums on Reddit and tweeting at trading platforms like Robinhood Markets Inc. and Fidelity Investments, as well as Citigroup Inc., to ask how they can purchase some of the debt. Ukraine raised 8.1 billion hryvnia ($277 million) Tuesday in a sale of war bonds to institutional buyers — part of its effort to tap into global support for its fight against Russia.
In spite of the devastating turmoil, Ukraine paid about $300 million of bond interest to international investors due Tuesday, honoring its financial commitments.
Kevin van Langen, who lives in Greece, said he looked into how to buy war bonds because it’s a good short-term investment opportunity while he’s saving for a house and another way to help Ukraine. The individual bonds have a face value of 1,000 hryvnia — about $33.
“You take some risk of course, but that’s a great way to help,” van Langen said in an interview. “You can use your savings for something good.”
He also donated 250 euros ($278) through the National Bank of Ukraine, which is raising money to support its military.
Robinhood declined to comment, noting that bonds aren’t tradable on its platform. Citi also declined to comment. Fidelity didn’t respond to a request for comment.
The Ukrainian government is currently looking at other ways to raise foreign currency, and is in talks with the IMF and World Bank for emergency help, Yuriy Butsa, Ukraine’s debt chief, said in a Bloomberg Television interview.
“We had an investor call yesterday, and we see a lot of requests of how funds can support us,” he said. “We’re looking at ways to attract not only in local currency, but also in dollars, euros.”
Althea Spinozzi, a Copenhagen-based senior fixed incomes strategist at Saxo Bank, said retail investors would be even more interested if Ukraine “is going to sell hard-currency bonds, either in U.S. dollars or in euros at a very high yield.”
It’s not surprising that Ukraine sold a relatively small amount of bonds on Tuesday because international investors don’t typically want to own currencies that are not widely traded, Spinozzi said. She expects that Ukraine will try to borrow more money, issuing bonds in a more attractive currency.
While stocks can be purchased with the click of a button on a brokerage app, most bonds are difficult for retail investors to buy because they are typically sold directly by banks to professional investors, and usually require a relatively large investment.
But war bonds have been used by governments to finance military spending for years. The U.S. financed its World War I efforts through the issuance of Liberty Bonds, while the U.K. repaid part of its WWI debt in 2014 — 100 years after it first borrowed the money.
Read the full article here by Allison McNeely and Paulina Cachero, Advisor Perspectives.