Russian bonds fall as foreign investors fear default

Russian government bond prices fell more than 50% on Monday as foreign investors grew increasingly concerned that Western sanctions would undermine the country’s ability and willingness to pay them.

Russian dollar-denominated bonds of 5.25% due in 2047 are priced at about 30 cents on the dollar, down from 70 on the previous trading day and about 100 before Russia invaded Ukraine, according to Advantage Data Inc. April fell to about 50 cents to the dollar from 95.50 the end of last week.

Moves by US and European governments to cut off Russia’s access to Swift International Banking Network Emerging market bond fund managers said the state could prevent the country from distributing payments to bondholders abroad.

They said bond custodians and clearing agents who sit between bond issuers and their lenders may also refuse to pass such payments for fear of running afoul of penalties.

Fund managers have said that even if Russia finds a way to pay foreign bondholders, it may choose not to respond to sanctions imposed by Western countries, as well as to its military support for Ukraine.

The economic fallout from the war in Ukraine could also increase the corporate bond default rate across Europe, which has been waning since early 2021, according to S&P Global Ratings. The credit rating company said in a report on Monday that continuing geopolitical tension, especially in relation to the Ukraine-Russia conflict, may have an impact.

The price of Russian energy company Gazprom PJSC’s 4.95% bond maturing in 2028 fell to 45 cents on the dollar on Monday from about 92 cents a week earlier, according to data from MarketAxess. Oil company Lukoil PJSC’s 3.875% bond due for 2030 fell to 40 cents from 87 cents over the same period.

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