Holders of Russian dollar bonds say they cannot accept rubles as Moscow speeds towards default

• Holders of Russian dollar bonds have said they cannot accept rubles, in the latest sign the government is headed for a default.
• Russia last week transferred rubles to make bond payments, after the US Treasury blocked its attempts to pay in dollars.

Holders of Russian dollar bonds have said they cannot accept rubles as payment, in the latest sign that Moscow is speeding towards an historic default.

Russia attempted to make $650 million of payments due on two dollar bonds early last week, but the US Treasury blocked American banks from cooperating. Instead, Russia sent through payments in rubles to the country's National Settlement Depository.

Two bondholders have told Insider that they cannot accept rubles, however, because the contracts of the bonds stipulate payments in dollars and because sanctions have restricted involvement with Russian financial institutions.

One US bondholder, who asked not to be named discussing a sensitive topic, told Insider they considered it a "moot point" because the contracts of the bond specify payment in dollars, so they could not legally accept any other currency.

Some of the foreign currency-denominated bonds that Russia has outstanding contain clauses that allow payment to be made in rubles in certain circumstances, but the 2022 and 2042 bonds in question are not among them.

A spokesperson for DWS Xtrackers, an exchange-traded fund company which holds one of the dollar bonds in question, told Insider: "Technically, there is no way for the funds to accept payments in rubles currently due to sanctions."

So far, however, the Russian government has shown little sign of backing down. Russian Finance Minister Anton Siluanov has said Western powers are pushing Russia into an artificial default, and this week threatened to take legal action.

But Western financial institutions and credit ratings agencies believe that Russia will have defaulted unless it sends the money in dollars at the end of the 30-day grace period following the April 4 payment deadline.

Global investment banks have kicked off the process of determining whether Russia has defaulted.

The Credit Derivatives Determinations Committee, which includes the world's top financial institutions, will meet on April 20 to discuss whether a "potential failure to pay event" has occurred. Such a finding would be a key step on the road to officially deeming Russia to have defaulted, at least in the eyes Western banks.

The crux of Russia's problem is that sanctions unleashed since it invaded Ukraine in late February have stymied the country's access to the global financial system.

Russia's central bank has been blocked from accessing the bulk of its $600 billion of foreign currency reserves and banks have been cut off from international payment and clearing systems. The US Treasury last week ramped up the pressure by blocking the government from accessing dollar reserves at American banks.

Ratings agency S&P last week put Russia in the "selective default" category, saying it expected new sanctions to be unleashed which could further complicate the situation.

"We currently don't expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts, or that the government will convert those payments within a 30-day grace period," it said.

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