Has Russia defaulted before?

Russia has defaulted twice in recent history. The first was in the aftermath of the Bolshevik takeover in 1917, when revolutionaries refused to pay out tsarist bonds. The second was in 1998 when it restructured debts and it defaulted only on domestic borrowing.

Will it default now? 

Russia is due to pay out a $117m coupon on a Eurobond on Wednesday. If it fails, there is a 30-day grace period. The country will likely be deemed to have defaulted if a payment has not been made after then.

Russia has a sturdy balance sheet following years of conservative fiscal policy, but sanctions may mean it does not pay.

Wall Street’s top ratings agencies, which advise on the safety of investments, have already sounded the alarm: Fitch, Moody’s and S&P have cut the rating on Russia bonds to a low ‘junk’ grade, warning a default looks likely.

Markets are bracing for Moscow to fail. Many traders are buying credit default swaps, insuring against the impact of borrower defaulting. Based on current pricing, markets predict a 71pc chance Russia will default in the next year, and 81pc for the coming decade.

Who would be affected?

Russia currently has $39.7bn of outstanding external debt – comparatively small compared to the US paying out almost $140bn on sovereign debt in 2020 alone. About half is held by foreigners. Another 3 trillion roubles of domestic debt was held by foreigners at the start of this year.

Most of that is held by financial institutions: banks, pension funds, asset managers and hedge funds.