Beautiful Virgin Islands

Friday, Nov 07, 2025

Wall Street is betting on Russian debt

Wall Street is betting on Russian debt

US banks have left Russia, but that doesn't mean they're done making money off the Kremlin's horrific invasion of Ukraine.

The sell-off of Russian debt associated with Russian President Vladimir Putin's campaign on Ukraine and the sanctions that have ensued have created a window for a new type of arbitrage that some in the finance world are gobbling up, seeing it as easy money.

The idea is what's known as a negative-basis trade, or purchasing dirt-cheap Russian government or corporate bonds along with credit-default swaps which act as insurance on the potential default of a borrower.

Normally this type of trade doesn't make sense, but as institutional investors look to quickly rid their portfolios of anything Russia-related, bond prices fell faster than the price to hedge them rose.

The volume of trading in Russian corporate debt has risen to a two-year high since Russia invaded according to Bloomberg News.

Data from the website MarketAxess shows that Russian sovereign debt traded at a volume of $7 billion between February 24 and April 7, up from $5 billion in the same period in 2021 -- a 35% uptick.

Russian bonds are trading furiously, said Philip M. Nichols, an expert on Russia and social responsibility in business and professor at the University of Pennsylvania's Wharton School. "There's a lot of speculators that are buying up these bonds that have been severely downgraded and are on the verge of becoming junk," he said.

Nichols says he's getting constant calls from analysts interested in the whether the potential trade makes sense. "The spread on Russian sovereign debt is astonishing right now," he said. "They're making an unusual amount of money with respect to the volume."

The cost to insure Russian debt grew to 4,300 basis points on April 5, up from 2,800 the previous day.

At the same time bond rates fell drastically -- with bonds maturing in 2028 trading at just $0.34 on the dollar. That means it could cost just over $4 million to insure $10 million of Russian securities, The Economist reported.

Hedge funds like Aurelius Capital Management, GoldenTree Asset Management and Silver Point Capital have increased their exposure to Russian markets, mostly by purchasing corporate bonds, the Financial Times reported in late March.

US financial institutions like JPMorgan Chase and Goldman Sachs are facilitating these trades, connecting clients who want to get out of their positions with hedge funds that have a higher risk tolerance for risk and less of a moral quandary about purchasing Russian debt.

"This is Wall Street," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. "It doesn't surprise me that they saw some sort of a loophole they could exploit to make money."

JPMorgan representatives say they are acting as middlemen, simply looking to aid clients. "As a market-maker, we have been helping clients reduce their risks and manage their exposures to Russia in the secondary markets. None of the trades violate sanctions or benefit Russia," said a spokesperson.

If clients wanted to quickly unload their exposure to Russia they could look to Russian oligarchs who would happily buy back sovereign bonds, said Robert Tipp, chief investment strategist and head of Global Bonds at PGIM Fixed Income. Selling Russian debt to US hedge funds, keeps any accrued interest out of Russian hands.

The trades are legal and lucrative, said Nichols, but highly speculative and subject to large swings based on news of Russia's invasion of Ukraine and further sanctions.

It also illustrates an alarming disconnect between Wall Street and the actual state of the global economy: Typically, investors would base their valuation of Russian debt on whether or not it will be repaid, and the likelihood that it would be repaid would depend on the strength and durability of the Russian economy, but that's not happening. New sanctions by the US Treasury on Tuesday, which blocked Russian access to any dollars they held in American banks, significantly increased the chances that Russia would default on its debt and that its gross domestic product, the main measure of a country's economic strength, would tumble.

The US Congress voted this week to remove Russia's most favored nation's trade status, a major economic downgrade that would pave the way for deeper sanctions and import controls on products essential to Russia like chemicals and steel.

The removal of that status, said Nichols, would sever Russia's integration into the global economy. If Wall Street were associated with the real world, he added, it wouldn't want to be anywhere near Russian debt.

"Russian debt is the province of high risk takers," said Nichols, "and institutions should probably stay away."

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
UK Pre-Budget Blues and Rate-Cut Concerns Pile Pressure on Pound
ITV Warns of Nine-Per-Cent Drop in Q4 Advertising Revenue Amid Budget Uncertainty
National Grid Posts Slightly Stronger-Than-Expected Half-Year Profit as Regulatory Investments Drive Growth
UK Business Lobby Urges Reeves to Break Tax Pledges and Build Fiscal Headroom
UK to Launch Consultation on Stablecoin Regulation on November 10
UK Savers Rush to Withdraw Pension Cash Ahead of Budget Amid Tax-Change Fears
Massive Spoilers Emerge from MAFS UK 2025: Couple Swaps, Dating App Leaks and Reunion Bombshells
Kurdish-led Crime Network Operates UK Mini-Marts to Exploit Migrants and Sell Illicit Goods
UK Income Tax Hike Could Trigger £1 Billion Cut to Scotland’s Budget, Warns Finance Secretary
Tommy Robinson Acquitted of Terror-related Charge After Phone PIN Dispute
Boris Johnson Condemns Western Support for Hamas at Jewish Community Conference
HII Welcomes UK’s Westley Group to Strengthen AUKUS Submarine Supply Chain
Tragedy in Serbia: Coach Mladen Žižović Collapses During Match and Dies at 44
Diplo Says He Dated Katy Perry — and Justin Trudeau
Dick Cheney, Former U.S. Vice President, Dies at 84
Trump Calls Title Removal of Andrew ‘Tragic Situation’ Amid Royal Fallout
UK Bonds Rally as Chancellor Reeves Briefs Markets Ahead of November Budget
UK Report Backs Generational Smoking Ban Ahead of Tobacco & Vapes Bill Review
UK’s Domino’s Pizza Group Reports Modest Like-for-Like Sales Growth in Q3
UK Supplies Additional Storm Shadow Missiles to Ukraine as Trump Alleges Russian Underground Nuclear Tests
High-Profile Broodmare Puca Sells for Five Million Dollars at Fasig-Tipton ‘Night of the Stars’
Wilt Chamberlain’s One-of-a-Kind ‘Searcher 1’ Supercar Heads to Auction
Erling Haaland’s Remarkable Run: 13 Premier League Goals in 10 Matches and Eyes on History
UK Labour Peer Warns of Emerging ‘Constituency for Hating Jews’ in Britain
UK Home Secretary Admits Loss of Border Control, Warns Public Trust at Risk
President Trump Expresses Sympathy for UK Royal Family After Title Stripping of Prince Andrew
Former Prince Andrew to Lose His Last Military Title as King Charles Moves to End His Public Role
King Charles Relocates Andrew to Sandringham Estate and Strips Titles Amid Epstein Fallout
Two Arrested After Mass Stabbing on UK Train Leaves Ten Hospitalised
Glamour UK Says ‘Stay Mad Jo x’ After Really Big Rowling Backlash
Former Prince Prince Andrew Faces Possible U.S. Congressional Appearance Over Jeffrey Epstein Inquiry
UK Faces £20 Billion Productivity Shortfall as Brexit’s Impact Deepens
UK Chancellor Rachel Reeves Eyes New Council-Tax Bands for High-Value Homes
UK Braces for Major Storm with Snow, Heavy Rain and Winds as High as 769 Miles Wide
U.S. Secures Key Southeast Asia Agreements to Reshape Rare Earth Supply Chains
US and China Agree One-Year Trade Truce After Trump-Xi Talks
BYD Profit Falls 33 % as Chinese EV Maker Doubles Down on Overseas Markets
US Philanthropists Shift Hundreds of Millions to UK to Evade Regulatory Uncertainty in Trump Era
Israeli Energy Minister Delays $35 Billion Gas Export Agreement with Egypt
King Charles Strips Prince Andrew of Titles and Royal Residence
Trump–Putin Budapest Summit Cancelled After Moscow Memo Raises Conditions for Ukraine Talks
Amazon Shares Soar 11% as Cloud Business Hits Fastest Growth Since 2022
Credit Markets Flooded with More Than $200 Billion of AI-Linked Debt Issuance
U.S. Treasury Secretary Scott Bessent Says China Made 'a Real Mistake' by Threatening Rare-Earth Exports
Report Claims Nearly Two Billion Dollars in Foreign Charity Funds Flowed into U.S. Advocacy Groups
White House Refutes Reports That US Targeting Military Sites in Venezuela
Meta Seeks Dismissal of Strike 3’s $350 Million Copyright Lawsuit
Apple Exceeds Forecasts With $102.5 Billion Q3 Revenue Despite iPhone Miss
Israel's IDF Major General Yifat Tomer-Yerushalmi Admits to Act Amounting to Aiding Hamas During Wartime (Treason)
Shawbrook IPO Marks London’s Biggest UK Listing in Two Years
×