Mineral deal with US fuels rally in Ukraine’s international debt

LONDON - Ukraine’s international debt rallied on May 1 after Kyiv and Washington

signed a deal

that will give the US preferential access to new minerals in the country and fund reconstruction.

Some bonds enjoyed their biggest gains in around two weeks, with the 2036 maturity rising around 2 cents to be bid at 51.41 cents on the dollar, Tradeweb data showed.

“The deal is positive for both sides, rather than the original very one-sided deal,” said Mr Grant Webster, co-head of emerging market sovereign and FX at investment manager Ninety One.

“And while there is no security element to it, and of course the deal could be rescinded, the signalling is important here as it reaffirms US commitment to Ukraine over the long term.”

Still, Mr Webster said, Russia and Ukraine remain far from a meaningful ceasefire. Some bonds remain nearly 20 cents below the mid-February peaks.

US President Donald Trump’s election victory in November, and hopes that he could swiftly broker a ceasefire to the war that began with Russia’s full-scale invasion of Ukraine in 2022, spurred a rally that saw bonds in February hit record highs since being issued in September as part of a debt restructuring.

But warming relations between Mr Trump’s administration and Russia soured the positive momentum.

An angry Oval Office exchange

between Mr Trump and Ukrainian President Volodymyr Zelensky in late February added to the pressure.

Analysts said the deal’s terms reaffirmed some US support for Ukraine’s sovereignty and left Kyiv’s ambitions for eventual accession to the European Union intact.

A draft of the deal seen by Reuters on April 30 showed that Ukraine also secured the removal of any requirement for it to pay back the US for past military assistance, something Kyiv had staunchly opposed.

However, it did not provide any concrete US security guarantees for Ukraine, one of Kyiv’s initial goals, and it was unclear how much closer Ukraine was to a resolution of the conflict with Russia.

“It has not changed the trajectory, but it will be good news on the margins,” said Mr Viktor Szabo, a portfolio manager with asset manager Aberdeen, which holds Ukraine bonds.

Peace is a pre-requisite for Kyiv to attract lasting investment, Mr Szabo said.

Ninety One’s Mr Webster also said it was notable that part of Ukraine’s rare earth minerals are in territory currently occupied by Russia.

“So, overall, we see this as positive and warranting a more permanent, albeit modest, reduction in Ukraine’s risk premium,” he said.

The deal establishes a joint investment fund for Ukraine’s reconstruction with contributions from Washington through direct financing or new military assistance, while Kyiv will contribute 50 per cent of revenues from new royalties on critical minerals and oil and gas exploration deals, according to Ukraine.

“Kyiv hopes the US may also increase defence aid, which would be useful given Europe and the UK just admitted they can’t find enough troops for the peacekeeping contribution they’ll have to make,” said Mr Michael Every, senior market strategist at Rabobank. REUTERS