Russia Default Odds Hit 99% As Yellen Forces Ruble Payment

As expected, the US is moving ahead with additional measures against high profile Russians and the country’s financial system.

This time, it’s personal, so to speak. It’s also mostly meaningless. Sanctions on Vladimir Putin’s daughters, Katerina and Maria, and similar measures aimed at Sergei Lavrov’s wife and daughter, are almost purely symbolic. The White House will say the crackdown is aimed at curtailing the leadership’s capacity to “hide” money. But this money is already hidden. And not in accounts that Western officials will ever be able to identify, let alone access or seize.

Full blocking sanctions on Sberbank and Alfa Bank could be impactful at the margins, but there’s an energy exception. Again. Until such a time as Janet Yellen gets the green light to declare all Russian energy exports and related transactions illegal in the eyes of the US Treasury, these are half measures. The plan was tipped on Tuesday.

Read more: G7 To Ban Investments In Russia As Sanctions Top 8,000

As illustrated rather poignantly in the linked article (above), Russia is the most sanctioned nation on the planet, and it’s not close. Total sanctions against individuals and entities have tripled since Putin’s incursion in Ukraine.

Meanwhile, Yellen’s move to prevent Russia from using dollars held at American banks to make principal and interest payments on hard currency debt quickly forced a ruble payment, in violation of the securities’ terms. In short: The Finance Ministry paid dollar bonds in rubles without an alternative payment clause. Swaps reflected 99% odds of default within a year.

Russia has 30 days (the contractural grace period in the applicable notes) to remedy the situation. Barring a softening of Treasury’s stance, that’ll presumably mean depleting whatever hard currency reserves are left at home, diverting export revenue, curtailing war spending or some combination of the three.

Meanwhile, the latest data from the Federal Statistics Service showed prices for sugar rose more than 5% in seven days for the week ended April 1. Onions were 8% more expensive over the same period.

PMI data out Tuesday suggested economic activity decelerated dramatically last month. The S&P Global services gauge for Russia plunged from 52.1 in February to 38.1 in March. Firms cited deteriorating demand in the face of inflation and geopolitical uncertainty.

“The rate of input price inflation quickened notably from that seen in February and was the sharpest on record,” the color accompanying the survey said, adding that “in line with a record rate of cost inflation, Russian service providers raised their selling prices at the fastest pace since the series began in October 2001.”