Ukrainian bonds underperform due to the drag of the peace process, while Eastern European neighboring markets soar.

On May 25, Ukraine dollar bonds have caused investors to lose more than 10% so far in 2025, the worst performance among emerging and frontier markets, due to the dim prospects of Trump brokering a peace deal. At the beginning of the year, the price of some Ukrainian bonds has nearly doubled since the restructuring in August last year due to bets on a ceasefire, and has boosted markets across Eastern Europe. London-based hedge fund Frontier Road turned to corporate bonds to hedge geopolitical risks, BofA maintained its overweight recommendation but warned of “downside risks” from the ongoing war, and Morgan Stanley expects the conflict to continue into 2025. “The market has fallen back to pre-Trump levels,” said Viktor Szabo, director of Aberdeen Investments. Major stock indices in Warsaw, Prague and Budapest all returned more than 30% in US dollar terms during the year, with the Hungarian forint, Czech koruna and Polish zloty leading emerging market currency gains. But the price of Ukraine’s zero-coupon bonds due 2035 has fallen to 50 cents from 70 cents in February.