Treasury Moves to Block US Investors From Buying Russian Debt

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The U.S. Treasury moved to block U.S. investors from making purchases of Russian debt in secondary markets, an apparent expansion from existing policy that only prohibited purchases of newly issued Russian government debt and some Russian corporate debts.

In new guidance, the Treasury Department said U.S. persons remain prohibited from new investment in Russia, which now includes "purchasing both new and existing debt and equity securities issued by an entity in the Russian Federation." Investors would still be allowed to sell or transfer securities as long as they do so to a non-U.S counterparty, according to the Treasury, and they can also continue to hold debt.

Edward Al-Hussainy, an analyst at Columbia Threadneedle Investments, said he spoke with eight London-based bond traders Tuesday morning who said they had ceased transacting any Russian securities.

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"I think every brokerage got the tap on the shoulder last night saying this market is closed," Mr. Al-Hussainy said. "The language [from the Treasury] is pretty clear. At this point no one is willing to explore any wiggle room."

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Secondary purchases of Russian corporate debt in the U.S. and Europe have already been limited because of sanctions against financial institutions like Sberbank and VTB Bank and the perceived reputational cost of backing entities based in the country. Still, some opportunistic buyers have bought Russian companies' debt at a discount, betting that the bonds will recover if the war between Russia and Ukraine comes to an end.

The facade of the U.S. Treasury Department in Washington, D.C. (iStock / iStock)

Investors learned of the additional restrictions on trading Russian debt from the frequently asked questions component of the Treasury sanctions website. The quiet announcement has led to market confusion over the new rules, which appear to conflict with earlier Treasury guidance, according to investors and lawyers.

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The U.S. has been moving to restrict Russia's access to foreign credit markets since the war in Ukraine began. The Treasury last month moved to push Russia into default on its sovereign bonds, effectively cutting off its ability to make payments on dollar-denominated debt through U.S. financial institutions.

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