Sanctions drive Russia to first foreign debt default since 1918

Russia is set to default on its foreign-currency sovereign debt after bond holders reported the Kremlin missed two payments late Sunday, per the Wall Street Journal.

Why it matters: This is the foreseeable outcome of sanctions imposed due to the invasion of Ukraine, even though Russia had successfully pushed off the inevitable for months. For now, the default is mostly notable for its symbolism as Russia’s first foreign debt default since 1918, reflecting the country’s international pariah status and crumbling economy.

Our thought bubble, via Axios’ Felix Salmon: Bond defaults normally happen because the issuer doesn’t want to make the payment. In this case, Russia was clearly willing to do so; it just wasn’t able to.

The big picture: Russia hasn’t defaulted on international debts since the Bolshevik Revolution, though it defaulted on domestic debt during a financial crash in 1998.

• Russian officials have struggled with payments on $40 billion of outstanding bonds since the U.S. and allies moved to impose sanctions on the country after Putin’s forces launched their invasion last February.
• Russia’s President Vladimir Putin signed a decree last week for a temporary measure giving the government 10 days to pick banks to handle payments under a new scheme, indicating Russia will regard its debt obligations fulfilled by paying bondholders in rubles, Reuters reports.

What to watch: Although the deadline passed for Russian officials to meet a 30-day grace period on interest payments that were originally due on May 27, it could be a while before a default is confirmed, AP notes.

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