U.S. bars Russia from paying bondholders through American banks, increasing default risk

Tne move is the latest punishment imposed by the Biden administration on Russia for its invasion of Ukraine.

U.S. bars Russia from paying bondholders through American banks, increasing default risk

The Kremlin towers and Ivan the Great Cathedral in Moscow.

Kirill Kudryavtsev | Afp | Getty Images

The Biden administration will ban Russia's government from paying bondholders through American banks starting Wednesday morning, the Treasury Department said.

The move increases the odds that Russia will default on its outstanding debt.

It is the latest sanction against that country by the United States in response to Russia's invasion of Ukraine.

The Biden administration since the invasion had granted a crucial exception to sanctions on Russia's central bank, allowing that bank to process payments to bondholders through U.S. and international banks.

But that exception will go away at 12:01 a.m. ET Wednesday, according to a bulletin issued by the Treasury Department entitled, "Notice on Russian Harmful Foreign Activities Sanctions General License 9C."

JPMorgan Chase & Co. research has said Russa is faced with nearly $400 million in payments due on dollar-denominated bonds on June 23 and June 24, according to a report by Dow Jones.

Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, earlier this month noted to CNBC that the Treasury's Office of Foreign Assets Control, which administers economic and trade sanctions, "can act any time to stop Western institutions from processing bond repayments" by Russia.

"OFAC can force Russia into default at any time. OFAC is still in the driving seat," Ash said.