Why a state bankruptcy in Russia is hardly avoidable

Frankfurt Rating agencies, investors and banks have made their judgments. A state bankruptcy in Russia can hardly be avoided. Fitch Ratings was the last of the major credit rating agencies to give the country a thumbs-down, saying it was “imminent” that the country would default.

Carsten Roemheld, capital markets strategist at fund house Fidelity International, cannot imagine how Russia’s default can still be prevented, and Simon Weaver, senior strategist for emerging market bonds at US bank Morgan Stanley, considers a default to be “the most likely scenario”.

The market has already anticipated this development. Since the start of Russia’s war of aggression against Ukraine two weeks ago, the country’s bond prices have plummeted.

At the same time, the costs of hedging against a payment default skyrocketed. The prices of credit derivatives, known as credit default swaps (CDS), meanwhile imply a more than 80 percent probability that Russia will default on its debt.