By Olena Harmash
KYIV (Reuters) – “Buy new bonds. It’s like a donation,” lawyer Olesia Mykhailenko wrote, urging her nearly 14,000 social media followers to buy Ukrainian war bonds and publishing a screenshot of her own bond portfolio on X.
With her knowledge of financial markets and experience as an early retail investor in Ukraine’s domestic debt, Mykhailenko added her voice to a broader government effort to encourage citizens to help fund the war with Russia.
“This is, first of all, a way to help the state, and secondly, taking into account quite high bond interest rates, it is also a way to protect your hryvnias from inflation,” Mykhailenko told Reuters.
The 30-year-old, speaking at a cafe in a quiet, leafy neighbourhood of central Kyiv, added that many of her followers had taken her advice and invested in war bonds – a common way of raising funds at times of major conflict.
The need for residential bond purchases has grown more acute as the war drags towards its 32nd month.
The ballooning costs of funding its resistance to Russia’s invasion have left a gaping hole in Ukraine’s finances, and by the end of the year the government will need an additional $12 billion to finance its defence sector.
During the war, international bond markets have been closed to Ukraine, whose foreign currency credit is rated at “selective” default by the S&P ratings agency.
In September the government agreed a deal with holders of Ukraine’s Eurobonds to restructure more than $20 billion of its international debt, saving $11.4 billion over the next three years.
Officials also plan the first wartime tax increase to narrow the deficit and say that Ukraine needs to borrow more on the domestic market.
The finance ministry more than doubled domestic borrowing in September compared with the previous month, raising 72.4 billion hryvnias ($1.8 billion) from treasury sales, including 28.9 billion from war bonds, it said.
With the 2025 budget deficit set at around $38 billion and foreign financial aid expected to diminish in the coming years, the need to raise more debt domestically remains.
CITIZENS AND BANKS INVEST
Commercial banks are the main buyers of state debt, but since the start of Russia’s full-scale invasion, residents and businesses have poured more money into war bonds.
“Citizens’ interest in domestic government bonds has surged,” the finance ministry said in a statement to Reuters, adding that it expected the trend to continue.
It said that investments from individuals jumped to 71.2 billion hryvnias ($1.7 billion) by the start of October compared with 25.5 billion ($622 million) in February 2022.
Overall, individual investors account for just over 4% of the domestic government bond portfolio, the finance ministry added.
In the past, retail investors in Ukraine’s domestic debt were scarce and mostly limited to those working in the financial sector, according to analysts and traders.
Official data shows residents’ investments in domestic bonds were about 100 million hryvnias in 2016. Tapping the market used to be much more complicated and expensive.
The war changed that.
“It was a very serious push,” said Taras Kotovich, a senior analyst at ICU investment house. “With the start of the war all commissions and requirements on minimal amounts were removed.”
Bonds can be bought online with a few clicks of a mouse, and the investments come laden with wartime symbolism.
Bonds sold via Diia – the unified digital portal for state services – carry the names of Ukrainian cities and towns occupied by Russian forces.
Along with patriotism comes profit.
Given limited opportunities to save and invest during the war, the bonds can be an attractive option with yields of between 15% to 18% for hryvnia-denominated paper and more than 4% for dollar-denominated paper and no tax.
Increases in war tax paid on profits on deposits now being debated in parliament could increase the bonds’ appeal.
Ukraine also sells its bonds to foreigners.
Non-resident investors accounted for about 1.4% of the total treasury portfolio at the start of October, the finance ministry said. Investors from Japan, Germany and the United States are the most active, it added.
ICU’s Kotovich said Ukrainians were most interested in short-term paper of up to one year and usually started with small investments, but once the first coupons were paid off, they tended to reinvest.
Investors range from students and soldiers to state officials and IT specialists. Mykhailenko’s father bought bonds in his first investment in a financial instrument aged 56, she said.
Given the interest in bonds, banks and investment companies have launched apps and implemented other measures to make purchases easier for retail investors, the central bank said.
Last month, the central bank also approved changes to support and further simplify investments in state debt.
