Ukraine's bonds rise but still down for the week on ceasefire worries

By Marc Jones

LONDON, Feb 21 (Reuters) - Ukraine's government debt made a strong finish to a turbulent week on Friday as hostile U.S. rhetoric toward Kyiv showed just a hint of softening.

Ukraine's so-called GDP warrant XS1303929894=TE - which pays more if its economy grows strongly - ended the day up almost 2.5 cents to 83.3 cents on the dollar.

But the warrant was down 2.5 cents for the week. At its lowest point during the week, it was off nearly 6 cents, which would have been the biggest weekly decline since mid-2022.

It was a similar story for Ukraine's regular government bonds, which Kyiv restructured in September. They were up as much as 3 cents on the day on Friday to about 65.5 cents but still down for the week. XS2895057177=TE, XS2895057334=TE.

The debt suffered a pounding after U.S. President Donald Trump's shock move to speak directly to Russian President Vladimir Putin last week and Trump's comment on Wednesday that Ukraine President Volodymyr Zelenskiy was a "dictator."

Trump kept up the pressure up on Friday by stating that Ukraine had no cards to play. But White House national security adviser Mike Waltz's comment that he expected Kyiv to sign a minerals agreement suggested a ceasefire deal with security guarantees for Ukraine might still be possible.

There were developments on the Russian side too as sources told Reuters that Moscow could agree to using its $300 billion of sovereign assets frozen in Europe for reconstruction in Ukraine, albeit only in the parts the country that Russia now controls.

Jeff Grills, head of emerging markets debt at Aegon Asset Management, said it had been a turbulent seven days for Ukraine's investors.

"Longer-term this (U.S. pushing for a peace deal) should be positive for Ukraine, but in the short-term there is definitely more uncertainty," he said. "Clearly this is not going to go smoothly."

A key worry for Grills and many other creditors is that a peace deal without the necessary security reassurances would make international institutions and private investors less likely to pour money into rebuilding Ukraine.

Investment bank JPMorgan estimated the reconstruction needs are at a minimum $35 billion a year over the next 10 years, although it could be up to $50 billion given Russia's intense bombardments of energy infrastructure over the last year.

"The risk of Russia restarting the war will limit any appetite for large reconstruction activities and, because of this, a ceasefire alone is unlikely to generate sizeable reconstruction," the bank's analysts wrote on Friday.