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What Russia's bond default meant by 2 July 2022
Summary
A look back at the Eurobond default that followed Western sanctions and a blocked payment channel.
What did it mean for Russia to default on its foreign debt, as the news settled in around 2 July 2022? The default itself had been reported on 27 June 2022, when Russia failed to service two Taiwanese-owned Eurobonds worth US$100 million.
The reason was the sanctions regime. Western sanctions had led Euroclear to block Russian attempts to service the debt before the deadline. Russia described the default as artificially manufactured and called it "a farce".
The immediate consequences for Russia were expected to be few. The country could not borrow internationally anyway, because Russian banks were banned from SWIFT.
A default of technicalities
Later accounts placed the event in a wider frame. The 27 June default was widely described as Russia's first foreign sovereign debt default since 1918, although Russia had defaulted on domestic ruble-denominated government debt in 1998. Earlier, on 2 June, Russia had missed a payment of $1.9 million in interest. That sum fell well short of the $75 million minimum needed to trigger a cross-default across other Russian eurobonds.
The later assessment was that the default arose from technicalities. Paying in dollars had become impossible under US and EU sanctions, which did not mean Russia lacked the capability to pay its debts.
