Sanctions push Russia to its first overseas debt default since 1918

Russia will default on its foreign currency sovereign debt after bondholders reported the Kremlin missed two payments late Sunday, according to The Wall Street Journal.

Why it matters: That is the foreseeable result of the sanctions over the invasion of Ukraine, although Russia had successfully averted the inevitable for months. For now, the default is notable mostly for its symbolism as Russia’s first default since 1918, reflecting the country’s international pariah status and crumbling economy.

our thought bubble, via Axios’ Felix Salmon: Bond defaults usually happen because the issuer doesn’t want to make the payment. In this case, Russia was clearly ready; it just couldn’t.

The big picture: Russia has not defaulted on international debt since the Bolshevik revolution, although it did default on domestic debt during a financial crash in 1998.

  • Russian officials have been struggling with $40 billion in payments for outstanding bonds since the US and its allies imposed sanctions on the country after Putin’s forces launched their invasion last February.
  • Russia’s President Vladimir Putin last week signed a decree for an interim measure giving the government 10 days to select banks to process payments under a new system, indicating that Russia will meet its debt obligations by paying bondholders in ruble will meet, reports Reuters.

Something to see: Though the deadline for Russian officials to meet a 30-day grace period for interest payments originally due on May 27, it could be a while before a default is confirmed, the AP notes.

Editor’s Note: This article has been updated with more details on Russia’s outstanding bond payments and additional context.

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