Despite payment, investors brace for Russian default

NEW YORK

Prices for Russian credit default swaps – insurance contracts that protect an investor against default – fell sharply overnight after Moscow used its precious foreign currency reserves to make a last-minute debt payment friday.

The cost of a five-year credit default swap on Russian debt was $5.84 million to protect a $10 million debt. That price was nearly half of Thursday’s, which, at around $11 million for $10 million in debt protection, was a signal that investors were certain of a possible Russian default. .

Russia used its foreign currency reserves located outside the country to make the payment, backing down from earlier threats from the Kremlin that it would use rubles to pay for those obligations. In a statement, the Russian Finance Ministry did not specify whether future payments would be made in rubles.

Despite the fall in insurance contracts, investors remain largely confident that Russia will eventually default on its debts for the first time since 1917. Major ratings agencies Standard & Poor’s and Moody’s have said Russia is “defaulting selective” on its obligations.

Russia has been hit with heavy sanctions from the United States, European Union and others in response to its February 24 invasion of Ukraine and its continued military operation to take control of Ukrainian territory.

The Credit Default Determination Committee — an industry group of 14 banks and investors that determines whether or not to pay on those swaps — said Friday it “continues to monitor the situation” after Russia’s payment. Their next date is May 3.

In early April, Russia’s Finance Ministry said it had attempted to make a $649 million payment due April 6 for two bonds to an unnamed US bank – previously reported as JPMorgan Chase.

At this time, the increased sanctions imposed for Russia’s invasion of Ukraine prevented the payment from being accepted, so Moscow attempted to effect payment of the debt in rubles. The Kremlin, which has repeatedly said it is financially able and willing to continue paying its debts, argued that extraordinary events gave it the legal basis to pay in rubles, instead of dollars or euros.

Investors and rating agencies, however, disagreed and did not expect Russia to be able to convert rubles to dollars before a 30-day grace period expired. next week.

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