The US blocks Russia from making a $600 million bond payment as it ramps up the pressure on Moscow

The US blocks Russia from making a $600 million bond payment as it ramps up the pressure on Moscow
Russia was blocked from making its dollar bond payment through JPMorgan on Monday.Gavriil Grigorov\TASS via Getty Images
  • The US Treasury blocked Russia's attempt to pay more than $600 million due on sovereign dollar bonds Monday.
  • The Treasury will no longer allow Russia to make sovereign bond payments using accounts at American banks.

The US Treasury has blocked Russia's attempt to pay more than $600 million due on foreign sovereign bonds, as it tries to ramp up the economic pressure on Moscow.

Up until Monday, the Treasury had been allowing American banks to process the payments so that money would reach US bondholders, despite the tough sanctions imposed over Russia's invasion of Ukraine.

But the department changed policy Monday, with a spokesperson telling Insider: "The US Treasury will not permit any dollar debt payments to be made from Russian government accounts at US financial institutions.

"Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default."

The Treasury told JPMorgan, Russia's foreign correspondent bank, that it did not have authorization to process the more than $600 million of payments due on two dollar bonds late Monday, according to a person familiar with the matter. JPMorgan declined to comment.


The Treasury spokesperson said the move "will further deplete the resources [Russian President Vladimir] Putin is using to continue his war against Ukraine and will cause more uncertainty and challenges for their financial system."

Risk of Russian debt default rises sharply

Russia had, up until Monday, surprised foreign investors by keeping up its bond payments. The Treasury had consistently given JPMorgan and other lenders authorization to process payments.

But the agency's dramatic change of policy raises new questions about Russia's ability and willingness to pay its foreign currency-denominated debts. Sanctions have frozen Russia out of just under half of the country's roughly $640 billion of foreign currency reserves.

Russia was due to pay around $550 million on a bond that matured Monday. It had originally been facing a $2 billion maturity payment, but bought back about $1.45 billion worth of the issue in rubles, largely from domestic bondholders. The government was also due to make an $84 million coupon payment on a 2042 dollar bond.

Timothy Ash, a senior emerging markets strategist at BlueBay Asset Management, told Insider he thinks there's now an 80% chance that Russia defaults.


Even if Russia finds a bank to pay foreign investors, bondholders may not be able or willing to accept the money, he said. He added that a default would be a nightmare for Russia that could lock it out of global capital markets for years to come.

The Russian government faces more than $1.8 billion of further payments on foreign currency bonds throughout the year, with around $71 million of that due in euros.

The payment process could be further complicated by the fact that an exemption that allows US bondholders to receive Russian debt payments is due to expire on May 25.

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