May 24, 2022 - World

U.S. to end Russia's international debt payment waiver

U.S. Treasury Secretary Janet Yellen speaking during a press conference in Germany on May 18.

U.S. Treasury Secretary Janet Yellen speaks during a press conference in Germany on May 18. Photo: Alex Kraus/Bloomberg via Getty Images

The Treasury Department said Tuesday in a note that it will not extend a waiver that allows Russia to pay its international debt holders through American banks, making the first Russian international default since the Bolshevik Revolution all but certain, AP reports.

Why it matters: The Kremlin has so far avoided a default despite the overwhelming sanctions imposed on Russia over its unprovoked invasion of Ukraine. That's likely to change when banks are unable to process dollar-denominated bonds payments from Russia after Wednesday.

  • The implications of a Russian default are currently unclear, but investors are watching for signs that it could ripple out into a broader market dislocation, Axios' Kate Marino reports.

The big picture: Russia last week made two debt payments before they were due, indicating that the Kremlin expected the U.S. not to extend the waiver, Reuters reports.

  • One payment was worth $71.25 million for a dollar-denominated bond, while the other was worth 26.5 million euros ($28 million) for euro-denominated notes.
  • Though Russia hasn't defaulted on international debts since the aftermath of the chaos set off by the Bolshevik Revolution in 1917, it defaulted on domestic debt during a financial crash in 1998.

What's next: Russia's next debt payments on two Eurobonds are due June 23, though those bonds have a 30-day grace period, meaning it could be declared defaulted in late July.

  • Russia can contest the default in U.S., British or European courts, though it may struggle to prove that it couldn't make payments because of circumstances beyond its control, AP notes.

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