“Make a Killing” While Financing the War in Ukraine!

The Ukrainian government is heavily financed by Western multilateral institutions, such as the EU and the IMF, as well as by generous loans and grants from individual countries. The total amount pledged by governments, including EU institutions, was over $170 billion as of May 31, 2023 according to the Kiel Institute for the World Economy. Thus, Kyiv does not need to go to the financial markets. And yet, the government is selling bonds with a yield of between 17.8% and 19.5%, depending upon maturity.

To purchase bonds from a country that is losing a war and has no chance to recover on its own is more than a hazard. But if its debt is guaranteed by third entities, one might make a fortune. Since actions by the Kyiv government on matters of finance are decided in London or Wall Street, no need to be a conspiracy theorist to assume that this scheme was concocted by the banks to “make a killing”, and not only metaphorically.

The Financial Times touted this opportunity on Aug. 10, in an article headlined, “Ukrainian Government Bonds Surge as Kyiv’s Cash Pile Climbs”. On Aug. 8, the Ukrainian Ministry of Finance placed war bonds worth 7,219 million hryvnias (UAH), according to a statement by the Ministry of Finance. There is some unclarity on figures, but here is what is reported by the UkraNews website, covering the bond offering:

“The Ministry placed securities with a maturity of 1.2 years for UAH22 million ($596,595.12) at 17.8% per annum; 1.5 years for UAH2,133 million at 18.35% per annum; and three years for UAH5,064 million at 19.50% yearly.

Who is buying such bonds? Not your grandmother or the local shopkeeper, but probably investment banks with their money. “Institutional investors including major U.S. and foreign banks—notably Citigroup—have taken their stakes in this,” SOLVE, a leading market data platform provider for fixed income securities, had reported earlier.

On June 3, Ukrinform reported that “from the placement of government bonds, UAH240.3 billion was raised, including UAH80.3 billion in foreign currency (1,644.1 million in dollars and 504.9 million in euros), to finance the state budget”. In addition, UAH101.1 billion was attracted from the issuance of military government bonds, and UAH498.6 billion was raised from external sources.

Since the world financial system still works on the “Originate to distribute” model, i.e. spreading the risk globally, Ukrainian government and foreign bonds are securitized, which means they are packaged into securities with other assets, that are sold, often several times, to other parties. Don’t be surprised if they end up in the vaults of the ECB and the Federal Reserve, alongside the junk that central banks are still purchasing to keep the bankrupt trans-Atlantic system alive.