Since the beginning of the full-scale invasion of Ukraine by Russian aggressors, Ukrainians have had an additional opportunity to support the country and its army during the war - the purchase of war bonds of internal government loans (OVGZ). The level of patriotism of Ukrainians turned out to be quite high, and they purchased these bonds even in conditions of negative yield. In 2022, given inflation, this was a sad reality. However, the situation has now changed significantly and government bonds, apparently, have become the most profitable way of investment available to ordinary Ukrainians. Naturally, because of this, their popularity quickly grew.
During the full-scale war alone, Ukrainian private investors invested more than UAH 16 billion in government bonds. Since the beginning of 2022, the total volume of government bonds owned by individuals has increased by 65%, investments in hryvnia bonds have exactly doubled and reached UAH 32 billion. Today you can earn up to 21.5% per annum on government bonds, which is much more profitable than bank deposits and investments in cash currency, even taking into account inflation and possible devaluation of the hryvnia. However, the main reason for the growing popularity of investing in government debt was the sale of military government bonds.
Low barrier to entry
Until 2022, the purchase of government bonds was practically the prerogative of banks and legal entities. Ordinary Ukrainians were reluctant to get involved with this type of securities. Primarily due to the high entry threshold. The minimum amount that could be invested in government bonds, for example through Privatbank, started from UAH 1 million.
Today, Ukrainians have a real opportunity to buy even just one military bond for 1 thousand UAH and at the same time receive real income. War bonds are targeted government debt securities intended for borrowing on the market to finance the needs of the Armed Forces of Ukraine and the state in times of war.
Auctions for the sale of war bonds are held every Tuesday with the participation of primary dealers - Ukrainian banks (now there are 11 of them, however, not all of them work with individuals). Citizens and businesses can purchase war bonds through banks or through licensed investment firms.
Today, the easiest way to purchase government bonds is through mobile applications. And this also became an additional advantage when deciding on such an investment. This service, for example, is offered by Privatbank, Ukrgasbank, FUIB, Monobank, as well as ICU brokers.
However, the undisputed leader in terms of ease of registration and wide selection of government bonds today is the “Diya” application, through which military government bonds can be purchased from October 2022. True, only hryvnia war bonds are sold there.
Selling without commission
Banks sell war bonds, as a rule, either with minimal commissions or without them at all. But if the client wants to purchase other (ordinary) government bonds, he will have to pay a considerable amount.
Commissions are charged by banks for opening a securities account and for crediting purchased government bonds to the account; for keeping records of government bonds in the securities account for each month, for the transfer of funds upon redemption of securities by the issuer and for each payment of coupon income.
Also, for non-military government bonds there is still an entry threshold. True, it has decreased significantly over the past two years. In Privatbank, for example, today the minimum purchase amount for government bonds is UAH 50 thousand. At the same time, non-military government bonds can be purchased not only in hryvnia, but also in US dollars and euros.
It is important that through Privatbank you can not only buy, but also sell previously purchased government bonds before their maturity date. In this case, government bonds are offered for sale on the secondary market, and those interested can buy them on more favorable terms than during placement. As domestic bankers note, investors reinvest 80% of the funds received from the sale of government bonds into government bonds. New investors are also actively coming.
Income is not taxed
Another option for purchasing bonds is through the investment company ICU. The brokers of this company do not have any commissions for the purchase and sale of government bonds in hryvnia. There is only a one-time fee of $35 for redemption of government bonds in foreign currency, regardless of the amount. In this case, you can buy government bonds both through the company’s website and through the ICU Trade mobile application.
Before purchasing government bonds, you should familiarize yourself in detail with what options are offered by a particular bank or company. There is no standard set. Each financial company will have its own set of bonds offered for sale and its own terms of sale.
When purchasing government bonds, the profitability will depend on the period for which the funds are invested and on the currency. At current rates and real inflation levels in Ukraine, bonds in hryvnia have become more attractive. In October 2023, the maximum yield on government bonds placed by the Ministry of Finance at auctions was 19.4% per annum in hryvnia, and 4.8% in US dollars.
According to domestic bankers, Ukrainians are most willing to invest in 6-month military government bonds. Most often, these are novice investors who want to test how securities investments work and do not want to take much risk over long periods.
The yield on 6-month military government bonds today is 16.25%. However, the government has practically stopped borrowing money for six months and is issuing more and more long-term securities, gradually lowering rates. The yield on one-year bonds today is 17.35%, and the most profitable bonds today are 4-year government bonds at 19.4%. However, you can even buy weekly government bonds on the secondary market. Rates on “old” issues range from 14 to 21.5% per annum (maturity in 2027).
In any case, investments in government bonds today are more profitable than a bank deposit. Unlike deposit income, bond coupons and investment earnings are not subject to taxation and are not subject to military duty. Therefore, 19% yield on government bonds is equivalent to 23% on a deposit. And today such deposits do not exist even among very adventurous bankers.
If you buy a bond on the secondary market, the benefits will be even greater. A real advantage of war bonds is that the return of invested funds along with interest is guaranteed by the state in full. In war conditions, this, you see, is an important advantage.
Almost the only risk that government bonds have is a default by Ukraine if it loses the war. But real patriots don’t even consider such a prospect.
