Creditors with Russian foreign currency-denominated government bonds faced an unusual situation. The U.S. said Russia fell into default (debt default) because it did not pay off its dollar debt, but Russia countered that it has money to pay back and is willing to pay back. Russia emphasizes that the U.S. and other Western countries have imposed financial sanctions on Russia, which invaded Ukraine, failing to repay dollar debts.
In addition, the situation is even more complicated as the terms of the contract for the default bonds are unique and Russia shows no signs of ending the war in Ukraine. Reuters looked at the scenario that creditors with $40 billion in outstanding government bonds issued by Russia in foreign currency could take in the future on the 27th (local time).
Creditors can try to mediate to impose economic constraints on the default Russia.
Russia has arbitration agreements with a number of countries, including the European Union, the United Kingdom, and Canada. Since 1996, there have been 27 investment disputes related to Russia. According to data from the U.N. Trade Development Council cited by Reuters, 10 cases are pending, one has been suspended, one has been agreed, 11 have been lost by Russia and four have been won by Russia.
Overseas creditors can make a wait-and-see choice. Many funds have already disposed of Russian assets due to sanctions. Funds that still hold Russian securities also depreciated. One way or another, it suffered economic damage.
Many fund managers may simply hold Russian bonds for now, Reuters predicted.
“Russian bonds are cheap,” said Carlos, a GMO government bond analyst. “As long as Vladimir Putin (President) takes power, prices will not recover, but bonds can survive at some point.”