What Are Bonds

A bond is a debt instrument: a government or company borrows money from investors and promises to repay it at a fixed date, paying interest along the way. Unlike a stock — which gives you partial ownership of a business — a bond makes you a creditor. The issuer owes you money on agreed terms. For Ukrainian investors, the most accessible entry point is the OVDP, a domestic government bond that can be purchased through banking apps and the Diia platform. This article explains how bonds work, what separates government bonds from corporate ones, and what role they can play in a personal portfolio.

How a Bond Works

Every bond has three defining parameters.

Face value (or par value) is the amount the issuer agrees to return at maturity. For most bonds this is 1,000 units of the relevant currency.

Coupon is the periodic interest payment the issuer makes over the life of the bond. If a bond has a 15% annual coupon and a face value of 1,000 hryvnias, the investor receives 150 hryvnias each year regardless of what the market does. Payments can be made quarterly, semi-annually, or annually depending on the bond's terms.

Maturity date is when the issuer returns the face value. Bond maturities range from a few months to several decades.

A simple example: you buy a bond with a face value of 1,000 hryvnias, a 15% annual coupon, and a two-year term. You receive 150 hryvnias each year, then 1,000 hryvnias back at the end. If you hold to maturity, your return is known from day one.

Bonds can also be bought and sold on the secondary market between issue and maturity. The market price in that case may differ from the face value.

Government vs Corporate Bonds

The key difference between bond types is who is borrowing and what risk that carries.

Government bonds

Government bonds are issued by a national government to finance public spending. In Ukraine they are called OVDPs; in the US, Treasury bonds; in the UK, gilts. Bonds from stable governments are among the safest debt instruments available, because a government rarely defaults — it can raise taxes, issue new debt, or adjust monetary policy to meet obligations. The trade-off is lower yield.

Corporate bonds

Companies issue bonds to raise debt financing. They typically offer higher coupons than government bonds to compensate for higher risk: a company can run into financial trouble or go bankrupt, delaying or stopping payments entirely.

Credit ratings from agencies like Moody's, S&P, and Fitch help investors assess borrower quality. Bonds rated investment-grade (BBB and above on the S&P scale) are considered relatively safe. Below that threshold lie high-yield bonds — often called "junk bonds" — which offer significantly higher coupons but carry far greater default risk.

Municipal bonds, issued by local governments, generally fall between government and corporate bonds in terms of risk and yield.

Bond Price and Yield

When a bond trades on the secondary market, its price may be above or below par. This stems from one of the most important principles of fixed income: bond prices and yields move in opposite directions.

Here is the logic. Suppose market interest rates have risen: new bonds are now offering an 18% coupon, but you hold one that pays only 12%. To sell it, you would need to lower your asking price — otherwise no buyer would choose your bond over a new one. Conversely, if rates fall, your bond with its higher coupon becomes more attractive, and its price rises.

This leads to the concept of yield to maturity (YTM) — the actual annualised return you will earn if you buy a bond at the current market price and hold it to maturity. It can differ significantly from the stated coupon rate, depending on the purchase price.

If you plan to hold a bond to maturity, day-to-day price movements are largely irrelevant — your return is locked in. If you might need to sell early, market risk becomes a real factor to consider.

OVDPs: Ukraine's Government Bonds

OVDPs (облігації внутрішньої державної позики — domestic government bonds) are issued by Ukraine's Ministry of Finance. They are the primary and most accessible fixed-income instrument for individual Ukrainian investors.

Hryvnia and foreign-currency OVDPs

OVDPs are available in hryvnias, US dollars, and euros. Hryvnia OVDPs typically carry a much higher coupon, reflecting elevated inflation and currency risk. Foreign-currency OVDPs (in USD or EUR) offer lower coupons but provide a natural hedge: both your income and principal are denominated in a stable currency, reducing exposure to hryvnia depreciation.

The minimum investment is 1,000 hryvnias (or the equivalent in dollars or euros).

Tax advantage

The most important feature for individual investors: OVDP coupon payments are exempt from personal income tax (18%) and the military levy (5%). Most other investment income in Ukraine is subject to both. This makes the effective after-tax yield on OVDPs meaningfully higher than instruments with comparable nominal rates.

How to buy

Individual investors can purchase OVDPs through:

• banks (PrivatBank, Oschadbank, Raiffeisen Bank, and others)
• the Diia government app
• licensed online brokers

The process is straightforward and requires no specialist knowledge or large initial capital.

"War bonds"

Since Russia's full-scale invasion in 2022, Ukrainian government bonds have often been marketed as "war bonds" or "military bonds." Structurally, these are standard OVDPs with the same terms and tax treatment — the label reflects that the proceeds fund defence needs. For investors, they carry no additional financial risk compared to regular OVDPs, and offer the same predictable return alongside a way to support the country.

Bonds in a Portfolio

Bonds play a stabilising role in an investment portfolio. Their core advantage is predictability: if you buy and hold to maturity, you know your return from the start.

Bonds are best suited to short and medium time horizons — situations where you cannot afford sharp drops in portfolio value. For long-term capital growth (ten or more years), equities typically deliver more, but with far greater volatility along the way.

The primary risk for bond holders is inflation. If the coupon rate is lower than actual inflation, your purchasing power erodes even as you receive nominal interest payments. For Ukrainian investors, this is a genuine concern given historically elevated inflation. When evaluating bonds, compare the yield not just against other investments but against the current inflation rate — that comparison reveals the real value of the instrument.

Summary

A bond is a predictable and transparent instrument: you lend money, receive regular interest, and get your principal back at maturity. For Ukrainian individual investors, OVDPs are the most practical entry point — with a minimum of 1,000 hryvnias, broad availability through banks and Diia, and a meaningful tax advantage over most alternatives. The key question to ask yourself before buying is how long you can commit the capital and whether the yield — after inflation — works for your goals.