Trump Win Sparks Ukraine Bond Boom

Welcome back to SovereignBeat!

• Powell holds steady: no rush to rate cuts

• UK Growth Outpaces Eurozone in Q2

• Oil extends losses on persistent concerns over supply glut

• Protests in Mozambique threaten debt default

• Ukraine bonds contniue surging following Trump win

Let’s dissect

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Markets Snapshot

Macro and Fixed Income Markets

• US: This week’s economic calendar was headlined by Wednesday’s inflation report, which largely aligned with expectations. In October, headline prices increased by 0.2%, taking the 12-month inflation rate up to 2.6%. The core inflation (excluding food and energy) rose by 0.3% mom to 3.3% annually.

  Despite energy and goods inflation having turned slightly negative, shelter costs continued to drive the Consumer Price Index (CPI). The shelter index, accounting for roughly one-third of the overall CPI, increased by 0.4% in October—twice the gain seen in September—and was up 4.9% compared to a year earlier. Services, where wages play a significant role in driving costs, remain a persistent inflationary pressure. Similarly, Thursday’s producer price inflation data showed monthly headline and core increases matching both expectations and trends in consumer prices.

• Federal Reserve Chair Jerome Powell, speaking at a Dallas Regional Chamber event, highlighted that robust U.S. economic growth gives policymakers room to approach interest rate cuts cautiously. He noted that there’s no need to rush to cut rates, citing strong domestic growth and a resilient labor market, even with softer job gains in October. Powell also acknowledged progress toward the Fed's 2% inflation target but flagged recent slight increases in consumer and producer prices.

• His remarks dampened expectations for a December rate cut, pushing short-term Treasury yields higher and reducing the probability of a cut to 62% from 82% earlier in the week. Fed fund futures for next year dropped, with December futures down 8 ticks, implying just 71 basis points of easing by the end of 2025—equivalent to fewer than three standard rate cuts.

• UK: The Fed's shifting outlook has strengthened expectations that the Bank of England will hold off on rate cuts for now, with markets not fully pricing in a move until March, partly due to Chancellor Rachel Reeves' expansive budget plans. Meanwhile, the UK economy grew by 0.6% in the second quarter, only slightly below the 0.7% growth in the previous quarter, according to data from the Office for National Statistics. This aligns with with initial forecasts and outpaces the Eurozone's 0.3% growth in Q2, though it slightly lags behind the US's 0.7% expansion.

• Japan: Bank of Japan Governor Kazuo Ueda is set to deliver remarks at an annual event this Monday, drawing significant attention for potential clues about the timing of the central bank's next interest rate hike. Later in the week, Japan is anticipated to release data indicating that consumer inflation slightly declined in October to 2.2%, marking the 31st consecutive month at or above the BOJ's inflation target.

Equity Markets

• US: The major U.S. stock indexes pulled back from record highs, retreating around 1% to 3% for the week. The results marked a shift from the previous week, when the indexes surged around 5% to 6% in the immediate aftermath of the November 5 election.

Commodity Markets

• Oil: Another week of declining oil prices as market sentiment shifts toward worries about a potential supply surplus in the coming months or even years. Brent Crude dropped by 3.8% week on week , closing just above $71 per barrel—the lowest level since September. The decline also reflects optimism surrounding renewed ceasefire negotiations in the Middle East and the possibility of a peace agreement to conclude Russia’s war in Ukraine.

Global Finance

• Mozambique: Deadly protests in Mozambique, sparked by disputed elections last month, are exacerbating the already high risks that the government will struggle to service its domestic debt, according to S&P Global Ratings. The agency downgraded the gas-rich nation’s local currency debt to CCC on October 18, just before widespread demonstrations shut down large parts of the economy. Unless there is a sharp fiscal adjustment or windfall revenue boost, Mozambique may need to resort to either distressed debt restructuring or continued delays in payments on its domestic debt. The protests, initiated by opposition presidential candidate Venâncio Mondlane over alleged electoral fraud, have escalated into violent clashes, with demonstrators facing teargas and live ammunition.

• Mondlane’s call to paralyze key trade routes exacerbates Mozambique’s already fragile economy. State finances are under severe pressure, with overspending on civil servant salaries and rising costs from the insurgency in Cabo Delgado, which has disrupted natural gas revenue. The country’s largest business association estimates economic losses from the election dispute at $390 million, or 2.2% of GDP. Mozambique has relied heavily on domestic bonds to cover its budget deficit, which S&P forecasts will average 4.3% from 2023 to 2027.

• The country's local currency debt is gradually turning into a solvency issue, as the maturities for next year and the year after are substantial. S&P also considers the local currency, metical, to be overvalued by up to 40%, with the real effective exchange rate at its highest since 2015. In October, the foreign-exchange demand backlog reached around $440 million, with a wait time of approximately three months, according to the IMF. However, the Washington-based lender also stated in its Nov. 8 report that the current exchange rate is close to its fundamental equilibrium value.

• Ukraine: Sovereign and corporate bonds have rallied following the U.S. election, with sovereign bonds gaining 12% and outperforming emerging market indices since mid-October. This initial surge was driven by traders pricing in a Trump victory and the potential for a ceasefire, with buying momentum accelerating after Fox News reported Trump’s plans to appoint a peace envoy to negotiate an end to the war, alongside his calls with Putin and Zelenskiy.

• While the election outcome increases the likelihood of creditors being repaid in full and on time, it could also reduce the chances of a more favorable resolution for Ukraine. Moreover, it remains unclear what immediate leverage Trump could use to pressure Russia into halting its offensive in eastern Ukraine, particularly as Russian forces continue to gain ground. The bond rally reflects optimism for a swift resolution, rather than focusing on the details of a potential deal.

• With yields still in the 14-20% range, there’s further upside potential for bonds if the conflict de-escalates and reconstruction efforts take hold. Notably, a bond issued by Ukrenergo, Ukraine’s state grid operator, has surged over 160% this year to 67 cents on the dollar, despite ongoing Russian attacks on infrastructure.

• Gabon: The government of West African launched a cash tender offer on 7 November to buyback up to USD 290m of its outstanding USD 605m notes due 2025, and reported receiving USD 441.6 million in valid tenders on October 14th. The cash tender offer provides bondholders 92.5 cents on the dollar, or USD 992.50 per USD 1,000 in principal, with the accepted amount distributed proportionally based on a proration factor of 62.52%. This means each bondholder will have 62.52% of their tendered amount accepted, ensuring the total proceeds align with the cap of USD 290 million. Last week, the 2025 bonds were trading at a mid-price of 98.7. Attijariwafa Bank, Citigroup Global Markets Limited, Ecobank Gabon SA, and Union Gabonaise de Banque SA acted as dealer managers, with D.F. King serving as the information and tender agent. Rothschild & Co is acting as the Republic’s financial advisor. The results of the offer are expected to be announced as soon as practicable after the expiration deadline, with the settlement date scheduled for November 25. Gabon will fund the payment from proceeds received from the issuance of XAF-denominated treasury securities on the regional market over the past 12 months.

• Additionally, the sovereign is considering buying back part or all of the untendered 6.95% 2025 Eurobonds, potentially totaling USD 315 million after the ongoing offer settles, either through public or private liability management transactions. The untendered bonds could face lower liquidity than comparable instruments post-settlement, which could impact pricing and increase trading volatility.

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Our Further Reading Recommendations

• What we think changes, what doesn’t, in EM fixed income post-election?(Vonotobel)

• Trump’s European allies think history is turning in their direction (FT)