London Daily

Focus on the big picture.
Friday, Sep 11, 2026

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

0:00
0:00
Close
John Lewis Partnership Loss Widens to £124 Million
UK Government to Put White Working-Class Social Mobility at Centre of Equality Policy
McLaren Plans £450 Million Technology Investment Creating 1,000 UK Jobs
UK Chancellor Faces Calls for Wealth Taxes and Public Ownership in Autumn Budget
English Mayors to Gain Powers to Impose Uncapped Overnight Tourist Taxes
JPMorgan’s Jamie Dimon Warns UK Government Against Bank Windfall Taxes
UK Air Traffic Control Outage Cancels More Than 2,000 Flights
UK Imposes Trade Ban on Israeli Settlements in the West Bank
UK Borrowing Costs Surge as Middle East Tensions Push Long-Term Gilt Yields to Highest Since 1998
Buckingham Palace Says Prince Harry and Meghan Will Not Resume Official Royal Duties
UK Treasury Faces Calls to Scrap £100,000 Childcare Support Threshold
Trades Union Congress Urges Labour Government to Rewrite Migration Policy
Riot Police Deployed After Anti-Migrant Protests Turn Violent in Portsmouth
UK Considers Replacing Some Disability Cash Payments With Direct Services
JPMorgan’s Jamie Dimon Warns UK Chancellor Against Higher Banking Taxes
UK Announces New Sanctions Targeting Israeli Settlements in West Bank
Metropolitan Police Investigate Alleged Illegal Donations to Reform UK
UK Charges Wiltshire Man With Assisting Russian Intelligence
UK Orders Urgent Review After Air Traffic Failure Cancels More Than 2,000 Flights
Merz Rebukes AfD Expansion in Saxony-Anhalt
King Charles Confirms Prince Harry and Meghan Will Remain Private Citizens
Labour Selects Former Child Refugee for By-Election in Keir Starmer’s Former Seat
Foreign Private Equity Accelerates Takeovers of London-Listed Industrial Companies
NHS Maternity Care Faces Scrutiny Over Support for Mothers After Caesarean Births
BBC Warns Staff Strikes Are Likely Amid Job Cuts and Programme Cancellations
English Housing Affordability Improves to Best Level in More Than a Decade
UK Health Commission Proposes Framework for Wider AI Adoption Across NHS
Labour Faces Pressure for Wealth Tax Ahead of Autumn Budget
Metropolitan Police Open Criminal Investigation Into Alleged Foreign Donations to Reform UK
UK Police Deploy Riot Officers After Anti-Immigration Unrest in Portsmouth and Dover
UK Defends Sanctions on Israeli Settlements Despite Diplomatic Retaliation
UK Air Traffic Control Failure Cancels More Than 1,000 Flights and Disrupts 65,000 Passengers
Compass Urges £10 Million Wealth Tax and Public Ownership Ahead of UK Autumn Budget
UK Government’s Devolution Plans Face House of Lords Scrutiny
Maldives Seeks New Chagos Sovereignty Talks With UK Prime Minister Andy Burnham
UK Airports Face Continuing Disruption After National Air Traffic Control Failure
UK Bans Imports From Israeli Settlements and Expands Sanctions on Iran
British Chambers of Commerce Forecasts UK Growth of 1% as Investment Remains Weak
UK Suspends Local Government Reorganisation Decisions and Cancels Planned Shadow Authority Polls
UK Parliament Opens Inquiry Into Gaps in Climate Change Preparedness
Andy Burnham and Xi Jinping Hold Talks on Trade, Security and British Consular Cases
UK Joins France, Canada and Other Nations in Measures Against Israeli West Bank Settlements
UK Announces New Sanctions Targeting Iranian Nuclear and Military Networks
British Chambers of Commerce Calls for Business Rate Reform and Productivity Support
UK Farmers Warn Dry Summer Could Reduce Crop Yields and Push Up Food Prices
UK Rail Networks Hit by Widespread Delays After Major Signalling Failures
Matt Clifford Resigns as ARIA Chair After Conflict-of-Interest Scrutiny
UK and France Say Joint Border Operations Have Prevented More Than 48,000 Irregular Channel Crossings
UK Core Inflation Remains Above Expectations as Utility and Commodity Costs Stay Elevated
Jaguar Land Rover Considers Up to 4,000 UK Job Cuts Amid Automotive Industry Pressure
×