Bombarded by Western Sanctions, Russian Government Bonds Risk Default

Western sanctions imposed on Russia due to its invasion of Ukraine threaten to cause a default on the country's government bonds. The United States, Canada, the United Kingdom, and European Union countries have frozen a significant portion of Russia's US$640 billion foreign exchange reserves.

According to Investing.com data, the 5-year foreign currency Credit Default Swap (CDS) indicator for the Russian government reached 1,685.86 on March 2, 2022. This figure soared 308.7% following Russia's attack on Ukraine on February 24th, when it stood at 412.48.

Compared to the end of last year, the CDS for Russian government bonds has surged 15,350 basis points (bps) or 1,212.67%. A higher CDS value indicates a greater risk of investing in that country.

As reported by Reuters, the Russian government previously defaulted on US$40 billion in debt in 1998, impacted by the Asian financial crisis which led to a fall in global crude oil prices. Then-President Boris Yeltsin also devalued the ruble, effectively leading to its collapse.

Russia has a US$107 million coupon payment due on two bonds maturing on March 16, 2022. Russian gas giant Gazprom also has US$1.3 billion in obligations to its investors due on March 7th.

Credit rating agency S&P has downgraded Russia's sovereign debt rating to CCC- from BB+, placing it in "junk" status. The barrage of Western sanctions has pushed Russia into the category of a country facing potential default.

Another credit rating agency, Moody's, previously downgraded Russia's debt to B3 from Baa3.