The US Treasury has authorized an auction in credit default swaps on Russian bonds, thereby allowing American holders of bonds to sell them off to non-US persons.
"Russia-related GL [General License, ed.] 46 authorizes transactions otherwise prohibited by section (1)(a)(i) of Executive Order 14071 related to the establishment, administration, participation in, and execution of an auction process...to settle credit derivative transactions with a reference entity of 'the Russian Federation' ('the auction')," the Treasury's Office of Foreign Control indicated in an update to its "Russian Harmful Activities Sanctions" FAQ on Friday.
In a second update, the Treasury explained that while US persons are prohibited from purchasing new and existing debt and equity securities from Russia, they are not prohibited "from selling or divesting debt or equity securities issued by an entity in the Russian Federation to a non-US person, including purchases of such debt or equity securities if ordinarily incident and necessary to the divestment or transfer of the debt or equity securities to a non-US person."
In addition, "US financial institutions may clear or settle, or otherwise serve as market intermediaries in, divestment transactions on the secondary market - including transactions between non-US persons," the Treasury said.
The updated rules, designed to allow US persons to "wind down" their investments in Russia, are said to have been created after an appeal to the Treasury from investors.
"To promote the proper functioning of such auction, GL 46 also authorizes US persons to purchase or receive Russian Federation debt obligations for the period beginning two business days prior to the announced date of the auction and ending eight business days after the conclusion of the auction," the Treasury indicated.
Put simply, the auction will enable US persons and institutions to sell off their Russian bond holdings, which the Russian Finance Ministry hasn't been able to pay out on in dollars thanks to US restrictions.
Last month, the Russian Finance Ministry assured that it would continue to pay out on all its obligations on maturing bonds, and emphasized that the actions of foreign intermediaries which have not taken the necessary steps to transfer payments to their final recipients was a problem beyond Russia's ability to control.
In the face of Western institutions' attempts to freeze out Russian bond payments, Moscow has offered settlements in rubles, using built-in options for such payments in the terms for all bonds issued since 2018, as well as the currency indemnity clause on older debt.
Russia has an estimated $30+ billion in dollar-denominated sovereign bonds on the market, and the US and its allies have done their best to complicate payouts to push Russia into a symbolic technical default.