dollars, was unable to process the payment due on April 4. banks.ĭespite the sanctions imposed in the days after February 24 when Russia began the latest conflict, American banks had been allowed to process certain Russian government payments, including those to bondholders.Īs a result of the Treasury's change of position, JPMorgan Chase, the bank where Russia holds large deposits of U.S. Treasury announced that it would tighten restrictions on Russia’s foreign reserve assets held in U.S. Last week, on the day that the payments were due, the U.S. Russia’s failure to make payments to its bondholders was a result of the various sanctions that have been put in place to punish the country’s government for the ongoing conflict in Ukraine. The news comes days after the Russian government, unable to access U.S.-dollar reserves in foreign banks, made an April 4 payment of $649 million in Russian rubles. Our recent coverage of the Ukraine crisis can be found here.The Russian government has defaulted on its sovereign debt for the first time in more than a century, according to S&P Global, the ratings firm that tracks the creditworthiness of governments and major businesses around the world. ■įor a look behind the scenes of our data journalism, sign up to Off the Charts, our weekly newsletter. JPMorgan and Goldman Sachs have reportedly each generated $100m apiece. International Financing Review, a financial-news magazine, reports that Barclays, a bank, has made $50m trading the securities. Some traders are reportedly profiting from the country’s distressed debt. Their only recourse may be to ask courts for permission to seize Russian sovereign assets-such as ships or foreign-exchange reserves frozen in foreign banks-to repay the debts. As Jay Newman, a former hedge-fund manager, has written, Russia has declined to waive its sovereign immunity from lawsuits, limiting their ability to sue in the event of default. But as Carmen Reinhart, the chief economist of the World Bank, recently pointed out, the exposure of non-bank institutions-such as hedge funds-to Russia is still unknown.īondholders may struggle to recover their money. The Russian government owes $40bn in foreign-currency debt, of which around half is held by foreign investors. The size of a default would be relatively small, by historical standards (see chart). A bond maturing in 2028 is trading at 34 cents on the dollar another maturing in 2042 is fetching just 28. Russian bond prices, meanwhile, are tumbling. This means it now costs $4.3m to insure $10m of the country’s securities for five years. According to data provided by IHS Markit, a research firm, the cost of insuring Russia’s government debt for five years hit 4,300 basis points on April 5th, up from 2,800 the day before (see chart). The news sent CDS spreads soaring once more. “Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default.”
“The US Treasury will not permit any dollar debt payments to be made from Russian government accounts at US financial institutions,” a spokesperson said in a news release. On April 4th, in the wake of reported atrocities against civilians in Ukraine, the Treasury said it would start blocking such payments. Although Russia’s finance ministry has continued to make payments on its foreign-currency debt, it has only done so thanks to an exemption granted by America’s Treasury Department allowing investors to receive debt payments through American banks until May 25th. Now a default-which would be its first foreign-currency default since 1917-seems all but inevitable.
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