Investors start buying Ukraine, Russia bonds

The trade is high-risk, given uncertainty over what Ukraine will look like after the war and how long the financial cordon around Russia will last. It also poses reputational dangers because of the human cost of the conflict and the increasing unwillingness of many financial institutions and corporations to be associated with Russia in any way.

The investment team at Gramercy Funds Management LLC held an extraordinary meeting Saturday, Feb. 26, to discuss the impact of the invasion on macroeconomics and the firm’s portfolio. Mohamed El-Erian, Gramercy’s chair and a former top executive at Pacific Investment Management Co., participated alongside Gramercy founder Robert Koenigsberger, who has been a player in Argentine government bond restructurings.

One idea the firm considered was buying Ukrainian government bonds, which had fallen to around 45 cents on the dollar. The firm had the capacity to buy because it had sold all of its Russia and Ukraine bonds about a month earlier.

Ukraine would likely remain independent in some form after the war and would receive massive financial aid from Europe and the U.S., Gramercy analysts believed. But they were unsure how much debt that bond investors would be asked to forgive in a potential restructuring and decided to wait given the uncertainty.