Money and Markets

The US may still force Russia into a bond default in the coming weeks, debt strategist says

Business Insider US

Moscow still faces the prospect of default, despite a last-minute payment this week.
Getty Images
  • The US may still force Russia to default on its bonds in the coming weeks, a BlueBay debt strategist told Insider.
  • A US Treasury exemption that has been allowing payments to get through is due to end on May 25.
  • The US could also block American banks from processing payments altogether, closing off key channels.
  • For more stories, go to

The US may still force Russia into a bond default in the coming weeks, a debt strategist has said, even though its authorities gave the green light to two last-minute payments.

Russia avoided falling into default on its foreign-currency bonds this week by sending $649 million of payments to investors, having previously said it would only pay up in rubles. 

Yet Timothy Ash, sovereign strategist at BlueBay Asset Management, told Insider the danger is far from over for Russia. He said the US' grip on the global financial system means it can push Russia into default "at any time."

The next hurdle for Moscow is a payment due May 27.

Since the US imposed sanctions on Russia over its invasion of Ukraine in late February, it has granted foreign bondholders an exemption to allow them to receive money from Moscow.

But that exemption is due to expire on May 25, and the US Treasury's Office of Foreign Assets Control is yet to say whether it will extend the carve-out.

"OFAC has made it absolutely crystal clear that whether Russia defaults or not is within their gift," Ash said Wednesday. He said the markets were uncertain whether OFAC would keep letting bondholders receive payments.

Western lenders have been consulting the US Treasury throughout the Ukraine conflict to check they're allowed to process funds from Moscow. But the agency could start to withhold its approval.

The Treasury told banks they could process the latest bond payments last week, after it was satisfied that Russia was draining its own currency reserves and not using dollars held in frozen accounts at American institutions. 

"It was a game of chicken between the two sides. Both sides blinked, in a way," Ash said.

"The Russians proved that they were more fearful of default than the Americans. The Americans still have the leverage. They can force Russia to default any time."

Should Russia fail to get payments to bondholders, Moscow could be locked out of international markets for years, Ash said.

He had little truck with claims that a default would merely be "technical" and therefore less serious.

"This 'technical default' — it implies it's some kind of slip-up. It's not a slip-up. It's a reflection of a decade of deteriorating Russia-Western relations that ended up in a massive war in Europe."

Get the best of our site emailed to you every weekday.

Go to the Business Insider front page for more stories.