Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Explainer-U.S. Treasury pushes Russia towards default: What next?

Stock Markets May 27, 2022 12:12PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Russian Rouble coins are seen in front of displayed U.S. Dollar banknote in this illustration taken, February 24, 2022. REUTERS/Dado Ruvic/Illustration
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio

By Karin Strohecker and Sujata Rao

LONDON (Reuters) - The lapse of a key U.S. license allowing Russia to make payments on its sovereign debt to U.S. holders has put the prospect of the country defaulting on its sovereign debt back into focus.

Russia is due to pay $100 million in interest on two sovereign bonds on Friday, with more payments coming up in June.

Here are some questions and answers on what might happen next:


A license issued on March 2 by the U.S. Office of Foreign Assets Control (OFAC) had allowed for transactions between U.S. entities and Russia's finance ministry, central bank or national wealth fund in relation to debt payments.

That allowed Russia to keep up interest and maturity payments on its sovereign debt, despite wide-ranging curbs on dealing with Russian entities. Since Feb. 22, it managed to make payments on seven dollar-denominated bonds.

But the Treasury Department said late on Tuesday it would not extend the license. While its action directly affects only U.S. bondholders, holders elsewhere will find it challenging to accept Russian payments because of U.S. dominance of the global financial system.


Russia has around $40 billion of international bonds outstanding, with just under $2 billion in external debt servicing left until the end of the year.

The debt can be divided broadly into three tiers: first, legacy bonds which are settled offshore in the usual manner and second, those issued after Moscow's 2014 annexation of Crimea which are settled at Russia's own national settlement depositary (NSD) and have alternative hard-currency payment provisions.

The last category comprises debt sold after 2018 which also settles at the NSD but contains provisions for payment in roubles.


On May 27, interest payments worth $71.25 million and 26.5 million euros ($28 million) are due on two bonds. To beat the OFAC deadline, Russia kicked the payment process off last week.

Russia's NSD - the payment agent on the two bonds - said it has received the funds, and announced it will make the payments in foreign currency on May 27.

The prospectus for both bonds states that "payments in respect of the principal of and interest (including any additional amounts) on a Global Bond registered in the name of NSD will be payable to NSD in its capacity as the registered holder."

Some analysts, as well as Russia's finance ministry, see this as the payment having been fulfilled.

However, it is seems unlikely that the money will make it further into bondholders' accounts. Russia's Finance Minister Anton Siluanov said on Friday that restrictions on capital withdrawals from Russia for non-residents will remain in place until Russia's gold and FX reserves are unfrozen.

By many definitions, funds' failure to appear in creditors' accounts does constitute a default.

Russia has a 30-day grace period after May 27 to make the payment.


If creditors do receive the May 27 payments, Russia faces payments on two bonds on June 23, and another one on June 24.

The June 23 payments are - much like the May 27 ones - due on bonds that are settled at the NSD.

However, the latter is $159 million due on a bond issued in 1998. Because this issue can only be settled offshore, analysts reckon Russia will not be able to make this payment without the Treasury license.

This bond carries a grace period of 15 business days.


The question is whether a potential non-payment will trigger a payout on credit default swaps (CDS) which investors use to insure their exposure to specific risks, in this case Russia defaulting on its sovereign debt.

A committee of major banks and asset managers is tasked with deciding whether a "credit event" has occurred. That in turn can trigger a payout.

JPMorgan (NYSE:JPM) expects that bonds that can be settled within Russia and receive payment at the NSD will not lead to a payout for CDS holders.

"Even if this payment is not subsequently transferred to the bondholders, this may be enough to avoid a CDS trigger," JPMorgan analysts said in a note to clients.

However, if Russia fails to make the payment due June 24, CDS could be triggered once the grace period expires.

Yet a trigger could already happen earlier than that.

A credit derivatives committee will meet on Friday to discuss whether a "credit event" occurred after Russia made payments on its sovereign debt but failed to add $1.9 million in interest accrued during the payment's grace period.

There are currently $2.54 billion of net notional CDS outstanding in relation to Russia, including $1.68 billion on the country itself and the remainder on the CDX.EM index, JPMorgan calculated.

Explainer-U.S. Treasury pushes Russia towards default: What next?

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email