Trump and Zelenskyy tout progress on peace but ‘thorny’ issues remain

Good morning from the Financial Times. Today is Monday, December 29th, and this is your FT News Briefing.

U.S. President Donald Trump says progress toward peace in Ukraine could be near 95 percent complete. And tis the season for resolutions, but we're taking a look at predictions, namely ones our FT colleagues made at the... start of 2025. Today, we're zooming in on the bond market. I was very nearly wrong, but it turns out I was right to say that the market would avoid total disaster. I'm Victoria Craig, and here's the news you need to start your day.

Ukrainian President Vladimir Zelensky and U.S. President Donald Trump exchanged plenty of flattery about their, quote, terrific meeting at Mar-a-Lago on Sunday. But a plan for peace in Ukraine is still elusive. The two leaders appeared side-by-side at the U.S. president's Palm Beach Resort after they wrapped three hours of talks that included a call with European leaders.

Zelensky said all aspects of a 20-point peace plan were discussed, while President Trump suggested progress toward an agreement could be, close to 95 percent. I really believe we're probably, Mr. President, closer than, by far, closer than ever before with both parties.

Standing in the way are what the U.S. president described as one or two thorny sticking points, which include territorial issues. He said a possible demilitarized zone in the Donbass region is a very tough issue and remains, quote, unresolved.

The two leaders stopped short of setting a deadline for a peace agreement to be finalized, but President Trump opened the door to a meeting with European leaders in January and said he could see a future trilateral meeting between himself, Zelensky, and Reagan. Russia's President Vladimir Putin.

You can find full coverage of the ongoing peace negotiations over on FT.com. And be sure to tune in to tomorrow's news briefing. My colleague Sonia Hudson sits down with the FT's Europe editor, Ben Hall, to reflect on the complicated journey this year. of trying to bring peace to Ukraine. Although Europe would like to be able to do this on its own, it's proved to be too indecisive and too weak to really do that. And it's still very much dependent on America.

That's tomorrow right here in your podcast feed. Christmas is over, but the new year hasn't. quite arrived, so we are officially in holiday limbo. If you're the kind of person who likes to use this betwixtmas as a time to look back at the year that was, then we have got just the thing.

for you. This week, we're taking a look at predictions our colleagues across the FT made at the start of 2025. We're calling them up to see if they were right and asking them to peer into their crystal balls once again for 2026. First up is the bond market. Will it buckle? It was a question our markets columnist and unhedged podcast host Katie Martin answered for the FT's Forecasting the World in 2025 list of predictions. Katie said no, the bond market might creak, but it won't break.

And indeed, she was right. Katie joins me now to celebrate her win. I mean, talk about the year that was in the bond market. Hi, Katie. Hey, Victoria. How are you going? Good. Thanks for doing this. So a disorderly loss of confidence in the U.S. Treasury market did not, in fact, happen this year. But how close did we come?

Oh, pretty close. Yeah. There were some days in April. You know, if you cast your mind back, that was when Donald Trump announced these supersized trade tariffs on pretty much the whole of the planet. The stock market like puked and that's fine. That's one thing. But where it started to get really scary was when the bond market also appeared to be under pressure. So bond prices were falling. Borrowing costs were picking up pretty quickly.

That was when it all got a little bit scary for me. And, you know, speaking to people in the market, I don't think we were that far away from some sort of accident. But... Someone had a little word in Donald Trump's ear about this and said, sir, I think maybe we need to take a bit of a pause here. And that's exactly what happened. There was this at least partial U-turn from Trump and the administration.

ended up landing in a place with milder tariffs around the world. So I was very nearly wrong, but it turns out I was right to say that the market would avoid total disaster. Well, I guess if we look into our crystal ball for the year ahead.

U.S. President Donald Trump is no stranger to tangoing with markets. We've got a really big announcement coming, he says, at the beginning of next year about who's going to helm the Fed when Chair Jay Powell's term ends in the spring. At risk roiling the bond market. Oh, yeah. Again, 100%. So, as you say, J-PAL is stepping aside in May.

Everyone is waiting very eagerly to find out who his replacement will be. And we don't know yet. But the betting seems to be that it will be Kevin Hassett, who has always been a big champion of Trump's economic policy. And the markets seem to think that he's going to. to get the top job. Okay, so what exactly could go wrong with the US bond market and the Fed chair announcement? As a rule, investors are a little bit skeptical about...

Kevin Hassett, they do have this concern that he's not going to be willing to push back when Trump wants lower borrowing costs. But he's one guy. And there's quite a large committee of people who set interest rates. It is plausible that he just gets voted down and doesn't get his own way. The kind of counterpoint to that, I guess, is that, again, it's the Fed chair, right? The market responds to whatever it is the chair of the Fed says. So you could get quite a lot.

lot of volatility based on this potential tension between the chair and the rest of the rate setting committee. So, look. None of this is certain at this point. We don't know necessarily that it will be Kevin Hassett and we don't know how disciplined he will be by the bond market. My suspicion is that he will be very disciplined by the bond market because bonds really matter.

bonds push Trump to change direction. So that's why on balance, I think there will be some volatility in bond markets next year. There always is. That's kind of, you know, it's part of the game, but I don't think they'll snap. Katie, you're on the record here, so we're going to trot this out again next year to see how right you were with this prediction. To be fair, your prediction last year was on the U.S. bond market, but there are a few other slices.

that I would like to hit. One of them being the UK, because investors there were also on a roller coaster ahead of Chancellor Rachel Reeve's budget announcement back in November. Are we on steadier footing for the foreseeable future now? We are on steadier footing. And so I was talking to a bond investor about this the other day, and he was saying...

Part of the reason that we're on a steadier footing is that Rachel Reeves has said, we're going to raise taxes a couple of years ahead of where we are now. And he said, that's a little bit like me saying to my wife. I'm going to lose weight in a couple of years, right? So you may or may not believe that your husband is going to lose weight in a couple of years, but the market is choosing to believe that these tax rises are coming.

And it looks like we're not going to have some of the really long-term debt issuance that previously bond investors have penciled in. And that's good because if you have fewer bonds hitting the market, then that just helps to support. So the UK market is much more stable than it was. Here's my worry, though. One of the big, I think, underrated reasons why the UK government bond market is behaving itself at the moment is because the US...

government bond market is behaving quite well. The US debt market in particular is the thing that drives the rest of global debt markets. If we were in a situation where the US lost control of its borrowing costs and they started shooting higher as a result of inflation and of a Fed that wasn't willing to raise interest rates, then...

the UK will get caught up in that too. There's only so much that Rachel Reeves can do to control the guilt market when that is so beholden to what happens in the US. What about the corporate bond market? Because at one point this year, you described the motto there as shut up and take my money. So how's the year end looking for that segment of the bond market?

Yeah, it's looking like shut up and take my money. The extra kind of pennies that you get as an investor for buying corporate bonds rather than buying government bonds, which at least on paper are much, much safer. That gap between the two. things is what we call the spread. And that has pretty much vanished for safe corporate debt, right? So investors are earning almost nothing extra for buying corporate bonds in relation to government bonds. And that's very, very unusual.

The gap did blow out a little bit recently because one of the really interesting developments we've had in corporate debt markets this year is that suddenly big tech is borrowing money and they've been sending some of it into the AI expansion. But now they've started issuing debt in quite large size. And again, just like with the gilt market, if you have lots of bonds hitting the market at once, you do tend to have periods of weakness. And we have had that recently.

And overall, credit investors that I speak to say, listen, we'd love to own more debt from Meta or from Google or from Apple or whoever it is. These are incredibly safe companies. So they are happy to absorb it, but we just have had a little bit of a bump in the road recently. Okay, so to wrap this all up into a nice little bow, you were right last year, the bond market did not buckle. But let me throw it at you again. You've given us...

sort of your prediction for each segment, but it feels a little bit fragile depending on what happens next year. So I'm going to ask you again, will the bond market buckle in 2026? I've really gone off you, Victoria. This is a very difficult... Oh, no. We made it seven whole minutes, Katie. That's a really hard question because I don't know what's going to happen with the Fed.

I will say, I'm going to say the same answer again. I think we might have some wobbles. We might have some moments where it looks like the market is losing faith in what the Fed is doing. But I don't think we'll be sitting here this time next year and the whole thing will just be a bin fire. I think it's just too important. We've seen this with Trump before. He does back down when the bond market starts really fretting.

I think they'll pull it around if it does wobble. Okay, so same time next year. We'll meet back here. We'll discuss. We'll see about that. If I'm wrong, I might be busy. Katie Martin, the FT's markets columnist. Thanks for your time. No pleasure. Before we go, don't forget our week of predictions rolls on tomorrow. Be sure to catch the next installment right here in the podcast feed. And as always, you can read more on today's stories for free when you click the links in our show notes.

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