Bond defaults would make it harder for Russia to find lenders – US Treasury official


Women walk past a sign showing U.S. dollar and euro signs on a street in Saint Petersburg, Russia February 25, 2022. REUTERS/Anton Vaganov

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WASHINGTON, March 14 (Reuters) – A Russian sovereign debt default would worsen the situation for Russia’s economy and financial system, making it harder for Moscow to find new sources of funding and increasing the costs of financing. future borrowing, a U.S. Treasury official said Monday.

The official told Reuters the Treasury believes the U.S. financial system’s direct exposures to Russian sovereign bonds are limited and that the main impact would fall on a Russian economy already under the brunt of Western sanctions.

“A default would make it increasingly difficult for Russia to find new lenders, and those who lend to them will demand higher interest rates, causing an additional drain on the Russian economy,” the official said.

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Russia, which is continuing an increasingly destructive invasion of Ukraine, has $117 million in payments due Wednesday on two dollar-denominated Eurobonds. Its finance ministry said it would make payments in rubles if sanctions prevented it from paying in dollars – a move markets would view as a default. Read more

Western sanctions have immobilized the foreign currency holdings of the Russian central bank and prohibited international banks from carrying out transactions in dollars and euros with sanctioned Russian financial institutions – including the central bank – complicating any payment.

U.S. Assistant Treasury Secretary Wally Adeyemo earlier told CNBC that Russia’s choices in how it pays off its debts will drain resources from President Vladimir Putin’s ability to continue the war in Ukraine.

“These choices will ultimately put (Putin) in a position where he has to make a decision as to whether he continues the invasion or stops this invasion,” Adeyemo said. Read more

The Russian Eurobonds in question, maturing in 2023 and 2043, were trading at 20 cents on the dollar or less on Monday. They are among the first to schedule payments after Russia was hit with sanctions over its invasion of Ukraine.

The US Treasury official said dramatic falls in the price of Russian sovereign bonds suggested a high likelihood of default.

“Investors are paying close attention to payments coming due soon and preparing for alternative outcomes,” the official added.

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Reporting by David Lawder Editing by Chris Reese and Lincoln Feast

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