As Russia's sovereign debt default showdown with the West continues to ratchet as Washington has been seeking to push Moscow into an involuntary bankruptcy by closing all loopholes for debt payments, all eyes were on a Friday deadline for Moscow to settle on two Eurobond coupons. Late in the day, Russia's National Settlement Depository (NSD) announced it has successfully paid these coupons in dollar-denominated bond and euro-denominated notes, although it remains to be seen if correspondent banks will accept them and if the US won't just claim the payments were illegal.
For now, Moscow has been able to circumvent the looming dire prospect of a default, racing against the clock set by the Biden administration's recent decision to allow a key waiver to expire which allowed transactions on Russian Eurobonds payments in foreign currency.
The Russian finance ministry - seeking to avoid a hard default especially since it has more than enough dollars thanks to every European country doing everything in its power to quietly circumvent sanctions and pay Russia for gas and oil in whatever format it wants - had moved up payment, last week wiring $71.25 million for a dollar-denominated bond and 26.5 million euros for euro-denominated notes ahead of the May 27 due date, Reuters earlier reported.
The irony is of course that Russia is not actually unable to service its debt, but that Western creditors led by the US are pushing to not accept the payments, in an ongoing effort to manufacture yet another debt crisis.
As Reuters aptly summarizes of the deeply unusual situation, "Russia is on the cusp of a unique kind of debt crisis which investors say would be a first time a major emerging market economy is pushed into a bond default by geopolitics, rather than empty coffers."
In light of the crisis, and what we might say is the potential looming for a default in name only, Russian Finance Minister Anton Siluanov asserted this week that "there would be no impact on the economy if the United States declares that Russia is in a technical default on its Eurobonds," and further that Russia will keep defending its rights as a reliable borrower.
Days ago, Treasury Secretary Janet Yellen cautioned following the US move to let its waiver expire that a window existed "to allow a period of time for an orderly transition to take place, and for investors to be able to sell securities."
U.S. will start blocking Russia’s bond payments to American investors. https://t.co/sAPh53Gepk— Steve Swerdlow (@steveswerdlow) May 27, 2022
The last time Russia defaulted on its ruble debt was 1998, two years before Vladimir Putin assumed power. One US Treasury insider recently told Business that bondholders can still get paid if Russia can find a way to send dollars without using immobilized funds in US accounts. Well, that loophole might soon be closing too.