What a Russian default would mean for the world Business

Has Russia ever defaulted?

Russia has defaulted twice in recent history. The first took place in the aftermath of the Bolshevik takeover in 1917, when the revolutionaries refused to pay the Tsarist bonds. The second was in 1998, when it restructured its debts and only defaulted on domestic borrowings.

Will it be default now?

Russia is due to pay a $117 million coupon on a Eurobond on Wednesday. If unsuccessful, there is a 30-day grace period. The country will likely be considered defaulted if a payment has not been made after this date.

Russia has a strong balance sheet after years of conservative fiscal policy, but sanctions may mean it doesn’t pay.

The main Wall Street rating agencies, which advise on investment security, have already sounded the alarm: Fitch, Moody’s and S&P downgraded Russian bonds to a low junk rating, warning that a default seems likely.

Markets brace for failure in Moscow. Many traders buy credit default swaps, insuring themselves against the impact of borrower default. Based on current prices, markets are forecasting a 71% chance that Russia will default next year and 81% over the next decade.

Who would be affected?

Russia currently has $39.7 billion in external debt outstanding – relatively small compared to the United States which paid nearly $140 billion on sovereign debt in 2020 alone. About half is held by strangers. At the start of this year, another 3 trillion rubles of domestic debt was held by foreigners.

Most of this money is held by financial institutions: banks, pension funds, asset managers and hedge funds.