Russia may be close to default on its debts

NEW YORK — Prices for Russian credit default swaps — insurance contracts that protect an investor against a default — plunged sharply overnight after Moscow used its precious foreign currency reserves to make a last minute debt payment on Friday.

The cost for a five-year credit default swap on Russian debt was $5.84 million to protect $10 million in debt. That price was nearly half the one on Thursday, which at roughly $11 million for $10 million in debt protection was a signal that investors were certain of a eventual Russian default.

Russia used its foreign currency reserves sitting outside the country to make the payment, backing down from the Kremlin’s earlier threats that it would use rubles to pay these obligations. In a statement, the Russia Finance Ministry did not say whether future payments would be made in rubles.

Despite the insurance contract plunge, investors remain largely convinced that Russia will eventually default on its debts for the first time since 1917. The major ratings agencies Standard & Poor’s and Moody’s have declared Russia is in “selective default” on its obligations.

Russia has been hit with extensive sanctions by the United States, the European Union and others in response to its Feb. 24 invasion of Ukraine and its continuing military operation to take over Ukrainian territory.

The Credit Default Determination Committee — an industry group of 14 banks and investors that determines whether or not to pay on these swaps — said Friday that it “continues to monitor the situation” after Russia’s payment. Its next meeting is on May 3.

At the beginning of April, Russia’s finance ministry said it tried to make a $649 million payment due April 6 toward two bonds to an unidentified U.S. bank — previously reported as JPMorgan Chase.