Markets worried about Russian loan defaults

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Markets worried about Russian loan defaults

With $117 million in interest payments on the government’s dollar-denominated bonds, today may be the start of a protracted battle over Russian debt. If Russia fails to pay, it could be its first default on foreign debt since the Bolshevik Revolution of 1917. The Times’s Ash Nelson, Alan Rapeport and DealBook’s Lauren Hirsch take a look at what’s at stake — and what might happen next.

state of play: The Russian government owes about $40 billion in bonds denominated in dollars and euros. Half of that debt is with foreign investors. Russian government bonds were considered investment grade as recently as a few weeks ago, and were included in the indexes used to benchmark other funds.

The Big Question: Will Russia Pay in Dollars or Rubles? Russia says the withdrawal of sanctions from the international financial system means it can only make payments in rubles, and that doing so is an acceptable means of payment given the circumstances. Others disagree, and say that paying dollar-denominated bonds in rubles would be a default. Regardless, payments due today have a 30-day grace period, so technically the default won’t happen until mid-April.

How harmful would the default be? Regulators say a Russian default does not pose a systemic risk because of the limited exposure to the country’s assets, which many investors repulsed after Crimea’s annexation in 2014. What’s more, investors have already taken a financial hit: Russian bonds are trading at a fraction of face value. Bond sales have also been forced after assets were taken out of the index. Paul Cadario, a former World Bank official, said with uncertain consequences for the wider financial system, there is always a risk that “there will be a player who no one has seen is suddenly in trouble.”

what happens next? It is unclear what will happen to investors who buy credit default swaps on Russian debt, as it is uncertain whether Russia will be declared in default if it pays in rubles. And the strangeness of Russian bond contracts means bondholders have limited ability to sue if they default. “That’s not to say that creditors won’t be able to take Russia to court and make a decision,” said Jay Newman, who helped lead a 15-year legal battle against Argentina over defaulted debt at Elliot Management. But this is going to be a long, hard slog, and nobody knows what the rules are.”

Latest in the Russo-Ukraine War:

Chinese stocks rose after Beijing promised to stabilize markets. Shares rose after government officials promised to back the stock markets and crack down on tech companies. Stocks fell amid concerns about a setback to Beijing over its ties with Moscow and new pandemic lockdowns in tech hubs such as Shenzhen.

Oil has fallen below $100 a barrel. The decline mirrored those pandemic lockdowns in China. Coal prices jumped, however, as buyers anticipate cutting exports to Russia in retaliation for sanctions. Meanwhile, Saudi Arabia is reportedly considering pricing some of its oil sales in renminbi, consolidating Chinese currency positions.

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Air travel reaches pre-pandemic levels. US travelers spent an estimated $6.6 billion on domestic flights last month, up 6 percent compared to February 2019. Airlines reported an increase in daily ticket sales, but fears of adverse conditions from higher fuel prices.

Pfizer and BioNTech sought US approval for a second booster shot. Drugmakers argue that a further dose would help protect those 65 and older from infection with the coronavirus, and not just from hospitalization.

AMC bought a stake in a gold mine. Yes true. The movie theater chain moved markets by acquiring 22 percent of Highcroft Mining, which had faced financial pressure (and is not currently mining). The deal confused analysts – Bloomberg’s Matt Levine wonders if AMC is becoming a meme-stock investment bank of sorts.

The Federal Reserve is widely expected to raise interest rates by a quarter today, the first time since lowering its benchmark rate to near zero at the start of the pandemic. While the rise will come as no surprise, the market’s reaction could be. (In 2015, the stock market experienced significant volatility for the first time in a series of Fed rate hikes.)

What comes next is less certain: The futures market predicts a roughly equal chance of six, seven or eight quarter-point rate increases this year, including those expected today. (Since there are seven meetings on the schedule, the upper limit will increase by half a point at some point.) This will be determined by the way in which Fed Chairman Jay Powell can produce a soft landing — that is, easing the high recession of the economy. Inflation without sending in.

  • Bank of America’s Ethan Harris said interest rates could be much higher than many expected. When the Fed begins to tighten, the market is “usually priced lower” on how higher interest rates end up, he wrote recently in a note to clients.

For more information on the Fed’s justification for raising rates, and how it could trickle through the economy, see our preview, The Times economic team will also run a live briefing with responses to the Fed’s decision, which will be announced at 2 p.m. Eastern.

— Sarah Bloom Ruskin, in a letter to President Biden Asked to withdraw his nomination to serve as the Fed’s top bank regulator. He lacked enough support to pass the Senate, with some Democrats joining all Republicans. opposition to his nominationPartly citing his statements on controlling climate risks.

Patricia Cohen of The Times writes that more than three million people have fled Ukraine – and with millions more likely to follow – the cost of resettling refugees is expected to run into tens of billions of dollars.

It will weigh heavily on the European countries that take them in, as those nations recover from the pandemic and grapple with supply shortages and inflation. And the permanent integration of millions of people could reshape the continent’s economy.

Ukraine’s President Volodymyr Zelensky will address Congress today and ask for more US support for his country as it fights the Russian offensive. The petition comes as lawmakers consider new legislation that would direct money confiscated from Russian oligarchs “for the benefit of the people of Ukraine”.

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“Putin and his oligarchs pump their dirty money into rule-of-law countries by buying mansions, mega-yachts, artwork and other high-value assets,” Senator Sheldon Whitehouse, a Democrat from Rhode Island, said in a statement about the bill. Which would go beyond freezing the assets of the oligarchs on the sanctions list and allow the confiscation and liquidation of assets worth more than $2 million. “We must seize those poorly earned luxuries and put them to use.”

The new bill is a step after “kleptocapture”. The Justice Department recently announced an inter-agency group called Task Force KleptoCapture, which is dedicated to enforcing economic penalties against Russia, including forfeiture of assets. The Property Seizures for Ukraine Reconstruction Act, introduced by a bipartisan group of senators, would expand the department’s authority to channel revenues from these seizures to reconstruction, humanitarian aid and weapons for Ukraine. It would also allow the Treasury to reward tipsters.

What are its possibilities? When President Biden previewed Task Force Kleptocapture in his State of the Union speech, he received applause from lawmakers on both sides of the aisle. The increased aid packages for Ukraine have also received widespread support. With Zelensky’s plea echoing in the ears of lawmakers showing unusual unanimity of late, Senate legislation (an updated version of a bipartisan House bill) may move fast in Congress but slow down when it reaches the White House, which is more has proceeded cautiously on some issues compared to lawmakers on what to do with Ukraine.

Timing is everything: The oligarch can overturn the law, however sharp officers go. Authorities in Britain are facing criticism about procedures that some say allow property to be moved before restrictions are in place.


  • Trafigura, a giant commodities trader, has sought billions from private equity firms to stabilize its finances amid whipsawing markets. (bloomberg)

  • SoftBank founder Masa Son pledged his 33 percent stake in the tech giant against debt, as the company’s shares have fallen. (bloomberg)

  • EU antitrust regulators sign Amazon’s acquisition of MGM for $8.5 billion. (Reuters)

  • Current and former employees of BuzzFeed accused the digital media publisher of illegally offering them the opportunity to sell their shares at a higher price after the market debut. (NYT)

  • Top M&A. Advisors for the Tulane Corporate Law Institute will return to New Orleans tomorrow, in person and online; The last date for registration is today. (Corporate Law Institute)


  • The SEC is reportedly re-investigating the Big Four accounting firms for potential conflicts of interest. (WSJ)

  • The National Labor Relations Board issued a complaint against Starbucks over claims of the company retaliating against two union organizers in Arizona. (NYT)

  • The Senate passed a bill to permanently move America to daylight saving time. (NYT)

the best of the rest

  • Intel is planning to spend at least $19 billion to build two factories in Germany. (NYT)

  • Another Evergreen-owned ship has sailed around the Chesapeake Bay, this time a year after Ever Given blocked the Suez Canal for weeks. (NYT)

  • “Behind Entenmann’s Cellophane, a Slice of Long Island Life” (NYT)

  • The restoration of nature is becoming a selling point of real-estate developers. (NYT)

  • Latest subject of study at New York University: Taylor Swift. (WSJ)

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