On Monday (4 Apr) the US Treasury announced measures to prevent the Russian government paying its sovereign bondholders more than $600m from reserves held at US banks, in a move intended to ratchet up pressure on Moscow.
Under existing sanctions, Russian foreign currency reserves held at US banks were ‘frozen’ but the US still allowed Moscow to service coupon payments on dollar-denominated sovereign debt with the money. This ended on Monday.
With around half of Russia’s $640bn gold and foreign currency reserves now frozen, Moscow may soon have to choose between servicing its debt, and so avoiding an historic default, or funding its ongoing war in Ukraine.
Russia currently has around $40bn outstanding on 15 hard- currency bonds. Although already barred from international borrowing markets, if Russia fails to make the coupon payments on these bonds promptly, and in the required hard currency, it will default. This means it will remain locked out of bond markets until creditors are repaid and all legal cases are settled.