Russia moves closer to default as Washington blocks debt payments through US banks

The U.S. Treasury Department said it would halt Russia’s ability to make debt payments in dollars through U.S. banks, and bring Moscow one step closer to a possible default on its obligations to international investors.

The move by the US authorities threatens to bring an end to a period since the invasion of Ukraine almost six weeks ago in which Moscow continued to pay on its dollar bonds, confusing many investors’ expectations that Western sanctions and control of the Russian currency will drive its first sovereign default since 1998 .

“The U.S. Treasury Department will not allow the payment of any dollars in debt from Russian government accounts at U.S. financial institutions. Russia must choose between emptying its valuable dollar balances or new incoming revenue, or default,” a U.S. Treasury Department spokesman said late Monday.

Russian dollar bond prices, which recovered slightly from the post-invasion drop, fell on Tuesday. A 2028 maturity bond traded at 34 cents a dollar, down 42 cents on Monday.

Although the Treasury apparently left the door open for further payment through dollars not frozen in sanctions, investors said they think it would be “technically difficult” to get the cash to Western bondholders.

JPMorgan, the American reporters bank it owns Processed five coupon payments On Russian foreign currency bonds since Moscow’s invasion of Ukraine, it refused to process two more repayments on Monday after seeking guidance from U.S. authorities, said a person familiar with the matter.

Moscow was supposed to make a $ 84 million coupon payment and a $ 552 million repayment of a repayable bond, and it has a 30-day grace period to transfer the cash to investors before it defaults.

“It’s hard to see how [Russian finance ministry] “It is possible to make payments to US bondholders in dollars according to the original documentation given that the US banks are the settlement / clearing agent, and it is difficult to see that Russia is technically able to put the dollars into the system to facilitate payment,” said Timothy Ash. Economist at BlueBay Asset Management.

J.P. Morgan declined to comment.

The move comes as the U.S. and Western allies look for new ways to do so Tighten their sanctions On Moscow following the continuation of its war against Ukraine and increasingly cruel military tactics.

The US and its allies imposed a series of severe economic sanctions on Russia in late February, but are trying to find ways to further strengthen them and prevent Russia Bypass them.

“Russia is facing a recession, skyrocketing inflation, a shortage of essential products and a currency that no longer works in much of the world,” said a spokesman for the US Treasury Department. “It will further deplete resources [Russian president Vladimir] “Putin is using it to continue his war against Ukraine and will create more uncertainty and challenges for their financial system.”

Even if Russia can avoid default by finding a way to make the repayments on Monday, it faces another hurdle to serve its debts after May 25, when an exemption in U.S. sanctions that allows U.S. investors to receive Russian interest payments is expected to expire.

Russia moves closer to default as Washington blocks debt payments through US banks Source link Russia moves closer to default as Washington blocks debt payments through US banks

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