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Wall Street “vultures” are trying to kill off Russian debt

Wall Street banks and hedge funds like JPMorgan Chase and Goldman Sachs are reportedly buying Russian corporate and government bonds at rock-bottom prices in hopes of massive post-war gains.

The risky investments come as other financial giants specializing in raising distressed debt have remained on the sidelines, finding Russia sanctioned and ostracized by Western business for its brutal military invasion of Ukraine.

The sanctions, which do not prohibit Western financial institutions from trading Russian bonds, have reduced demand for Russian corporate and government bonds while creating irresistibly high yields.

Trading volume in Russian corporate bonds is at a two-year high, according to Bloomberg News – this despite the regime of sanctions imposed on Moscow for its invasion of Ukraine.

The news site cited data from MarketAxess showing that Russian corporate bonds traded at an average daily value of $156 million this month on March 24.

Goldman Sachs and Wall Street hedge funds have pounced on distressed Russian corporate and government bonds -- although analysts say the risk is huge.
Goldman Sachs and Wall Street hedge funds have pounced on distressed Russian corporate and government bonds — although analysts say the risk is huge.
Bloomberg via Getty Images

That’s double the average daily value compared to a year ago — and the highest since the coronavirus pandemic began.

The most heavily traded bonds include those of Yandex, Lukoil, Gazprom, Novolipetsk Steel and Russian Railways.

Investors wasted little time tracking down potential profit opportunities — even as Russia’s invasion sparked a humanitarian crisis in Eastern Europe.

But the risk is enormous, especially given the many uncertainties surrounding the ongoing war, including the dangers it could spill over into NATO countries and even entail the use of unconventional weapons.

Earlier this month, investors breathed a sigh of relief after the Russian government made a $117 million interest payment on its foreign debt.

But a much larger payment is due on April 4 — totaling $2.2 billion — and creditors are far less optimistic that Russia will step in this time.

Bonds issued by Russian energy giant Gazprom have been particularly popular with Wall Street financial institutions.
Bonds issued by Russian energy giant Gazprom have been particularly popular with Wall Street financial institutions.
Shutterstock

Last week’s bond payment sent investors into a panic because it was unclear whether Russia’s central bank would be able to use its frozen US dollar reserve to make the payment – and whether US banks would cooperate with the country to transfer the money.

There was also disagreement over whether Russia could pay the debt in its own currency. Russia’s Treasury Ministry insisted the country could pay in rubles, but people familiar with the contract said it had to be paid in dollars.

Hedge funds and investors see an opportunity to make money.

A Russian government bond, last priced at 48 cents per dollar, will mature in September next year. If Russia pays off its foreign debt, anyone who buys the bond today could see a yield of at least 108%.

Bonds from Russian energy exporter Lukoil were also particularly attractive to investors.
Bonds from Russian energy exporter Lukoil were also particularly attractive to investors.
Shutterstock

Critics of Russia have slammed hedge funds and other financial players for trying to capitalize on a tragic turn of events.

Bill Browder, the American who ran a hedge fund in Russia before being kicked out of the country for criticizing the Kremlin, tweeted: “I’ve had a lot of calls from my old acquaintances in the hedge fund industry asking me if they bombed out should buy Russian stocks and bonds.”

“My answer: It’s like asking if you should buy German stocks during the Holocaust.”

He added: “Have some decency.”

https://nypost.com/2022/03/30/wall-street-vultures-look-to-make-killing-off-russian-debt/ Wall Street “vultures” are trying to kill off Russian debt

DUSTIN JONES

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