US bonds to likely push Russia towards a default.

 27 May 2022

Russia has to pay 40 billion dollars of bonds acquired till now. This year's amounts sum up to be around 2 billion dollar payments. On March 2, the U.S. Office of Foreign Assets Control i.e. OFAC, allowed Russia to settle its bond interests with the USA. To date, from Feb 22nd, Russia has managed to pay its interests on 7 bonds. It has to pay around 100 million by 27th May with grace periods extending up to 24th June.

Causes :

When a country/institution needs to raise money, it issues bonds; which are nothing but debts, on which the interest needs to be paid twice an annum until the initial money and the interests are paid off. Russia has 3 types of bond payments remaining. 1) The bonds before 2014 2) The bonds after the annexation of Crimea in 2014 3) The bonds after 2018. The 1st and 2nd category bonds need to be paid in the respective currencies in which the bonds were issued, but the 3rd category bonds can be paid in roubles too. The second and 3rd category bonds are settled at Russia's NSD i.e. the National Settlement Depository.

As the US entities were not willing to extend the date of the licence, the Russian finance ministry started offsetting the interest payments worth 71.25 million and 28 million USD respectively. Since the money is being settled at NSD in roubles, the ministry is considering the payments done. But the ministry also announced that the money will not be deposited into the bondholders' accounts until Russia's gold reserves are unfrozen (The sanctions the US applied after the Ukraine-Russia war).

 Effects :

As this money is not issued in the bondholders' accounts, it would result in defaults i.e. the sanction of CDS (Credit default swaps) as an insurance to the bondholders. This will be decided by the IMF and the major banks by 24th June when the CDS will be triggered.

What this means for you :

If you are an FX trader, and if Russia is able to pay off the settlements without the default acting, you can surely take a bullish pathway on Roubles vs Dollar charts, as the debts are settling off, the money will now be available to the public to increase the economy and strengthen the currency further.

As for the future bond payments are concerned, they are on June 23 and June 24 the latter one being 159 million on the bond issued in 1998.

To date, Russia has 2.54 billion USD in CDS. 

Support Links :

News Link

Comments

Post a Comment

Popular posts from this blog

The need for divesifiaction in imports

Image
Topic: International Trade  What is in it for you:  Of the 6,000 plant species humans have eaten over time, the world now mostly eats nine, of which just three —  rice, wheat, and maize —  provide 50% of all calories . The cheaper the food gets, and the lower the imports from the government, the dependence on the above-mentioned crops rises and given with it the dependence on a few select countries . In addition to that, people now have diets with more fats and carbohydrates, and fewer nutrients.  Effects:  The UN estimates soaring costs will push 71 million people globally below the poverty line .  Global crop yields could fall about 30% because of climate change, while food demand is expected to jump 50% in the coming decades, according to United Nations estimates. New opportunities and Future insights:  It will be a long road for any of these initiatives to make a notable difference against the trend for homogenization the industrialized supply chain promotes.  Both the current
Read more

Saudi-US Tensions Simmer

Image
A dispute over oil risks causing irreparable harm to US relations with Saudi Arabia, a crucial partner for Washington in the Middle East. Causes: Nearly two weeks on from a decision by OPEC+ to cut oil production, tensions are escalating. White House National Security Adviser Jake Sullivan fired the most recent salvo, saying the US would consider changes to the security and military support it provides Riyadh. “The president isn’t going to act precipitously,” Sullivan said on Sunday to CNN. Biden will “take his time to consult with members of both parties put over oil risks causing irreparable harm to US relations with Saudi Arabia, a crucial partner for Washington in the Middle East. Effects: In response, officials across the Middle East have denied the supply decrease was politically motivated or a reflection of support for Russia following its invasion of Ukraine. Saudi Defense Minister Khalid Bin Salman said the decision was “due to purely economic reasons,” while ministers from
Read more

The Winter is Coming

The Oil and gas from Russia are exceptionally essential for serving the winter in Europe. After all, even Hitler succumbed to it.  Causes -  The diesel which is used for generating electricity is now available in historically low amounts in North-Western Europe, so much so that by this November, an energy crisis, including blackouts and lack of fuel and electricity for large-scale industries is extremely essential. Adding to his discussion is the large-scale drying up of the Rhine (river in Germany), which supplies and transports all the diesel in Europe. The forecast of this news is so gloomy, that this river which controls trades over 80 billion USD will stop. Effects - Adding to this the already food shortages in Europe due to the war, the survival of the poorest will be challenging in the coming months. The signs of relief from the Western Superpower are low because they are themselves dealing with extreme inflation (CPI peaked at 0.2% in June).  What is in it for you - Well in mac
Read more