As part of the sanctions imposed on Russia this year, the US included an exemption allowing domestic banks and investors to continue receiving payments on existing Russian bonds.

The Treasury Department has now announced that it will allow that exemption to expire, which will almost certainly cause Russia to default on its dollar-denominated debts.

According to the Wall Street Journal, Russia has made payments toward about $2.5 billion worth of foreign debt since the beginning of its invasion in Ukraine.

Without the exemption, it will lose the ability to have US-based intermediaries process bond payments on its behalf, which will likely cause it to default on its foreign currency bonds.

JPMorgan research cited by the Journal shows Russia has nearly $235 million in payments due on June 23rd and a further $159 million due the following day. Missed payments would trigger a 30-day grace period from the 23rd but only a 15-day grace period from the 24th.

That means creditors could declare the Russian government in default as early as July 9th.

It would be the first time Russia defaulted on its foreign debts in over 100 years.

Anna Gelpern, a Peterson Institute for International Economics fellow, says it will be difficult to predetermine the long-term impacts on Russia.

“In some hypothetical future market, it is hard to tell what of this would be relevant to market participants’ view of Russian foreign-denominated debt,” she said. “It will likely depend more on how this episode is resolved than how it came about.”

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