Investors think there's a 94% chance Russia that default on its debts, after US blocks dollar payments

Russia currency sanctions economy — Russia's economy has been hit hard by sanctions, which are complicating the government's efforts to pay its debts.
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The market thinks there's a 94% chance that Russia defaults on its debts, according to the price of credit-default swaps.
The risk of a Russian default has risen dramatically after the US Treasury blocked it from making dollar payments using American banks.
However, Russia argues it's being pushed into an "artificial default" and is trying to pay its debts in rubles.

There's a 94% chance that Russia defaults on its foreign-currency debts within the next five years, according to the price of insurance on the country's bonds.

Credit-default swaps — financial products that insure investors against non-payment — on Russian bonds have surged in price after the US on Monday blocked Moscow from using dollars in American bank accounts to pay its debts.

As of Thursday morning, CDS prices implied that there was a 93.6% chance that Russia will default on its debt within the next five years, according to data from the ICE Exchange shared with Insider.

The probability of default stood at 8% at the start of the year before rising to 42% on February 24, the day Russia invaded Ukraine, ICE data showed.

As of Thursday, to insure a notional $100,000 Russian bond for five years, investors would have to pay around $77,500 upfront as of Thursday. That's up from around $29,000 on February 24.

Russia was plunged into a debt crisis on Monday when the US Treasury said it would no longer allow the government to pay bondholders using funds held at American banks. Moscow failed to pay $650 million which was due, in dollars, on two bonds on Monday, after the US blocked the transactions.

The Russian Finance Ministry has said the government will pay in rubles instead. But analysts broadly believe this would constitute a technical default. There is a 30-day grace period on the bonds before the government would be declared to have defaulted.

Russia has argued that the West's sanctions — which include cutting the country off from the bulk of its $600 billion of foreign reserves — are pushing it into an "artificial default."

Reuters reported that Kremlin spokesperson Dmitry Peskov said Wednesday: "Russia has all necessary resources to service its debts." He added that there are "no grounds for a real default."

Holders of credit-default swaps could find it difficult to claim their payout if Russia refuses to recognise that it has defaulted. JPMorgan estimated in early March that there were $6 billion of outstanding credit-default swaps taken out on Russian debt.

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