The cost of Russian government debt insurance has climbed to the point a record 99% chance of default within a year after the Russian Ministry of Finance paid off part of its bonds in dollars with rubles.

Credit Default Swaps (Credit Default Swap or CDS), which insured US $ 10 million of the nation’s bonds for one year, was priced at approximately US $ 7.3 million in advance and US $ 100,000 per year this Wednesday, according to data from ICE Data Services.

That’s more than $ 5 million up front last week, data shows. ICE is the main European CDS clearing house.

What is CDS

theA CDS performs the role of insurance on a financial instrument.

Tracing its origins, in the late nineties, a division of JPMorgan developed a financial mechanism specially designed to protect clients from losses arising from bond default or other financial instrument in your possession.

This instrument is named Credit Default Swap (CDS), and in just a decade it went from being the unlikely invention of financial engineering to becoming one of the preferred tools for the realization of financial speculation.

payment in rubles

The Russian Finance Ministry said it had to send ruble payments to the National Settlement Depository after foreign banks denied its payments on bonds due on Monday and a coupon for promissory notes due in April 2042, which is also scheduled for the start of the week.

“A bank correspondent refused to execute instructions for the payment of coupons on Russian Federation bonds due in 2022 and the payment of interest on bonds due in 2024 in the total amount of 649.2 million dollars. must be paid on April 4, ”the Ministry said in its Telegram account.

none of the values allows a payment option in rublesaccording to bond documents, raising investor concerns that the country is at risk of default.

both notes They have an extension of 30 days. data collected by the Bloomberg Program.

The Government argued that because of the “hostile actions” of the U.S. Department of the Treasury, which prevents Russia from fulfilling its obligations regarding state debt and protecting the interests of bondholders, the Ministry of Finance had to resort to a Russian bank to make the necessary payments.

So the Treasury on April 4 transferred the payment of coupons of bonds in rubles at the official exchange rate of the Central Bank of Russia to the national liquidation deposit “NKO”, in accordance with a decree of President Vladimir Putin, to it reaches the accounts of bond holders.

According to Russian authorities, “therefore, the obligations under the bonds of Russia-2022 and Russia-2042 was fulfilled in full“.

Foreign bond holders from countries considered unfriendly, including the United States and the entire European Union (EU), will be given interest payment credit to a “type C” account (for non -resident and in rubles).

The Ministry of Finance stressed that the restoration of Russia’s access to Western foreign currency accounts will create conditions for Russian authorities to make decisions that allow investors to “convert the funds in rubles in these foreign currency accounts at the exchange rate (…) “.

But the truth is there are no signs that the West is succumbing to sanctions. On the contrary, on Wednesday he announced a new package of revenge after the discovery of massacred civilians in Russian -occupied towns.

Bloomberg and EFE

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