Russia has reportedly missed a Sunday night deadline to pay interest payments, raising the prospect that it might default on its foreign debt for the first time since the 1917 Bolshevik Revolution.
Such a move would further alienate the country from the global financial system amid its war in Ukraine.
Some Taiwanese holders of Russian Eurobonds have not received interest due on May 27 after a grace period expired on Sunday evening, two sources said. Moscow had been due to make $100 million (€94.6 million) in coupon payments on two Eurobonds.
But it could take time to confirm a debt default.
Early on Monday markets, however, seemed unfazed. Asian shares advanced after Wall Street ended a rare winning week, capped by a 3.1% gain on Friday for the benchmark S&P 500. US futures and oil prices also were higher.
Optimism over China’s progress in controlling coronavirus outbreaks, as schools and businesses reopen, was also fueling buying, analysts said.
The Kremlin owes about $40 billion (€37.8 billion) but has been shut out of the international financial system since its full-scale invasion of Ukraine in late February.
Last month, the US Treasury Department ended Russia’s ability to pay its billions in debt back to international investors through American banks. In response, the Russian Finance Ministry said it would pay dollar-denominated debts in rubles and offer the opportunity to convert into the original currency.
Russia calls any default artificial because it has the money to pay its debts but says sanctions have frozen its foreign currency reserves held abroad.
Tim Ash, senior emerging market sovereign analyst at BlueBay Asset Management, tweeted that the default “is clearly not” beyond Russia’s control and that sanctions are preventing it from paying its debts because it invaded Ukraine.
Russia defaulted on its domestic debts in the late 1990s but was able to recover from that default with the help of international aid.
In normal circumstances when a country defaults on its debt, investors and the defaulting government typically negotiate a settlement.
But sanctions bar dealings with Russia’s finance ministry. And no one knows when the war will end or how much defaulted bonds could wind up being worth.
Russia has already been cut off from Western capital markets, so any return to borrowing is a long way off.
Investment analysts are cautiously reckoning that a Russia default would not have the kind of impact on global financial markets and institutions that came from an earlier default in 1998.
While the war itself is having devastating consequences in terms of human suffering and higher food and energy prices worldwide, default on government bonds would be “definitely not systemically relevant,” International Monetary Fund (IMF) Managing Director Kristalina Georgieva has said.