Russia is still sliding by default. will be decided by the US Treasury Department.

  • The Russian government could still pay off its foreign bonds within a few weeks, despite making key payments last week.
  • This is because a key U.S. Treasury rule, which allowed payments to pass, expires later in May.
  • If the Ministry of Finance does not extend the exemption, it will be very difficult for Russia to get its payments to bondholders.

Like Indiana Jones creaking under doors that close The temple of doomRussia managed to avoid default at the last minute on Tuesday as bond payments began to enter investors ’accounts.

Yet there is still one major hurdle in Russia’s path which means it could easily go bankrupt when its next bond payout is due on May 27th.

The United States could cut off Russia

Until now, Western bondholders have been allowed to receive government bond payments from Russia only because of a special rule set by the U.S. Treasury Department in late February.

The exemption – officially called General License 9A – “authorizes persons in the United States to receive interest, dividends, or maturities on debt or equity” of the Russian government. This has allowed money to leak out of Russia, despite a thickening layer of sanctions suffocating the country’s financial system.

The problem for Moscow is that the exemption expires on May 25.

That’s two days before it has to send investors $ 71 million to pay coupons on dollar bonds and $ 36 million ($ 38 million) on euro bonds.

Bondholders and analysts have remained speculating whether the U.S. Treasury Department will extend the allocation. A treasury spokesman declined to comment.

“They may or may not renew the General License,” Timothy Ash, emerging market strategist at BlueBay Asset Management, told Insider. “If they give an extension, it will be temporary. It could be a month, it could be three months. We’ll wait and see.”

Moscow must cough up dollars

Russia is allowed to pay in rubles on bonds denominated in euros, thanks to a reserve provision in the contract. But he has to cough up $ 71 million in dollars.

If investors do not get their money, Russia will fail in the eyes of Western financial institutions. Until the country sent dollar payments last week, a global board of banks was ready to declare that Moscow had officially given up its debts.

Andy Sparks, an analyst at financial data firm MSCI, said in a note this week that market prices suggest that investors still think Russia is very likely to go bankrupt.

He said the prices of credit-default swaps – financial contracts that insure investors against default – suggest there is a 67% chance of default within a year and an 88% chance of default in five years.

“The high level of uncertainty still hangs over Russia’s government bond market,” Sparks said.

Russia claims non-compliance would be ‘artificial’

Russia has claimed that Western sanctions are pushing towards “artificial” non-payment, even though it has money to pay. The government still receives significant revenue from energy exports and has access to hundreds of billions of dollars in foreign exchange reserves, despite sanctions that have frozen much of its stockpile.

Yet such an argument is “ridiculous,” according to Ash. “Geopolitics is a key part of a country’s credit story. You can’t ignore it.”

Including $ 109 million maturing on May 27, Russia still has to pay nearly $ 2 billion in bonds this year.

In January, it had about $ 39 billion in foreign currency-denominated bonds, according to JPMorgan analysts, of which $ 20 billion is owned by foreign investors.

Read more: There is a greater than 50% chance that the recession will come in the next 12 months as inflation remains hot and consumer spending weakens, warns a strategist at Putnam Investments who says commodities are the best way to protect your portfolio.

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