Prices of Russian government bonds fell more than 50% Monday as foreign investors grew concerned that Western sanctions would undermine the country’s ability and willingness to pay them back.
Russian 5.25% dollar-denominated bonds due in 2047 were quoted around 30 cents on the dollar, down from 70 the previous trading day and around 100 before Russia invaded Ukraine, according to Advantage Data Inc. Bids for a $2 billion bond that falls due in April dropped to about 50 cents on the dollar from 95.50 late last week.
Moves by the U.S. and European governments to cut off Russian access to the international Swift banking network might prevent the country from distributing payments to bondholders abroad, emerging-markets bond-fund managers said.
Bond trustees and clearing agents that sit between bond issuers and their lenders might also refuse to pass along such payments for fear of running afoul of sanctions, they said.
Even if Russia finds a way to pay foreign bondholders, it might choose not to in retaliation for the sanctions imposed by Western nations, as well as for their military support of Ukraine, the fund managers said.
Economic fallout from the war in Ukraine could also boost the rate of corporate bond defaults across Europe, which had been on the wane since early in 2021, according to S&P Global Ratings. Continuing geopolitical tension, particularly with respect to the Ukraine-Russia conflict, could have an impact, the credit-rating firm said in a report Monday.
The price of Russian energy company Gazprom PJSC’s 4.95% bond due in 2028 fell to 45 cents on the dollar Monday from around 92 cents a week ago, according to data from MarketAxess. Oil company Lukoil PJSC’s 3.875% bond due 2030 dropped to 40 cents from 87 cents over the same period.