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US stops paying on Russian bonds, increasing the risk of default

According to a spokesman for the US Treasury Department, on April 4, Russia was due a payment of $ 552.4 million for a bond to maturity, $ 84 million for a bond. However, the US government has frozen foreign currency reserves held by the Russian central bank at American financial institutions.

The US stopped paying for Russian bonds, increasing the risk of default - Photo 1.

US blocks Russian foreign currency payments.

Even so, the Treasury Department still allows the Russian government to use those funds to make bond payments on dollar-denominated sovereign debt in some important cases.

The move is intended to force Russia to choose between draining its remaining valuable reserves of dollars or new incoming revenue, or defaulting on its debt, the spokesman said.

Russia currently has a total of 15 international bonds outstanding with a face value of about $40 billion, and has managed to avoid international default despite unprecedented Western sanctions.

Despite having enough money to pay from reserves, the sanctions have frozen about half of Russia’s roughly $640 billion gold and foreign currency reserves.

So Russian pressure will increase as the US and Europe are planning new sanctions this week to punish Russia for the killings of civilians in Ukraine.

Russia could face a historic default if it doesn’t pay off its international debts. With that, the country will likely be barred from accessing markets until its debts are repaid in full.

The last time Russia was allowed to make a $447 million coupon payment on a 2030 sovereign dollar bond was on March 31, which was the company’s fifth “missing” payment. Russia since the beginning of hostilities with Ukraine.

In addition, according to CNBC, the Russian economy is expected to shrink much this year as inflation soars and as international sanctions come into effect.

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