According to international agencies and ratings agencies, Russia appears on the verge of defaulting on its debt. However, economists don’t see any global contagion effects.

Kristalina Georgieva, International Monetary Fund’s Managing Director, stated Sunday sanctions imposed by western governments on RussiaIn response to the invasion of Ukraine, it would cause a severe recession in this year. Her statement was followed by the assertion that Russia’s sovereign debt default is no longer considered an “improbable event” by the IMF.

She issued her warning following that of Carmen Reinhart, World Bank Chief Economist. Reinhart warned that last week. Russia and ally Belarus were “mightily close” to defaulting on debt repayments.

However, CBS reported that the IMF’s Georgieva said, in spite of the risk of Russian default, that there was no immediate financial crisis. She also stated that global banks’ exposure of $120 billion to Russia were “not systematically relevant”.

But, certain banks and investment firms could be more affected than others. U.S. fund manager Pimco started the year with $1.1 billion of exposure to credit default swaps — a type of debt derivative — on Russian debt, the Financial TimesLast week, this was reported. CNBC reached out to Pimco for comments but was unable to reach them immediately.

Russian authorities have a number of important payment dates in the future. The first is $117 million for some U.S. Dollar-denominated Eurobond Coupons on Wednesday.

Fitch Ratings agency downgraded Russia’s sovereign debt last week to “C”, indicating “a sovereign default imminent.”

S&P Global Ratings also downgraded Russia’s foreign and local currency sovereign credit ratings to “CCC-” on the basis that the measures taken by Moscow to mitigate the unprecedented barrage of sanctions imposed by the U.S. and allies “will likely substantially increase the risk of default.”

“Russia’s military conflict with Ukraine has prompted a new round of G7 government sanctions, including ones targeting the foreign exchange reserves of The Central Bank of Russia (CBR); this has rendered a large part of these reserves inaccessible, undermining the CBR’s ability to act as a lender of last resort and impairing what had been – until recently – Russia’s standout credit strength: its net external liquidity position,” S&P said.

Moody’s reported that Russia’s credit rating was also downgraded to its second-lowest level earlier this month. They cited the central bank’s capital controls as a reason for the reduction, which could have led to defaults.

Moscow sought to improve its financial situation following the imposition of a series of sanctions by western countries in 2014. These were in reaction to Crimea’s annexation. Consistent budget surpluses were maintained by the government, which sought to reduce its dependence on foreign aid and increase its ability to pay its debts. U.S. dollar.

Although foreign exchange reserves were intended to protect against depreciation, the recent sanctions effectively froze all currency reserves except for euros and dollars. In the meantime, Russian rubleplunged to record lows.

“To mitigate the resulting high exchange rate and financial market volatility, and to preserve remaining foreign currency buffers, Russia’s authorities have – among other steps – introduced capital-control measures that we understand could constrain nonresident government bondholders from receiving interest and principal payments on time,” S&P added.

Grace periods

Anton Siluanov, Russian Finance Minister, stated Monday that Russia would use its reserve of Chinese yuanTo pay Wednesday’s coupon in foreign currency on a sovereign Eurobond issue

Siluanov also suggested that the payment can be made in rubles, but only if western banks reject the request. This would allow Moscow to fulfill its foreign debt obligations.

Although any defaults on upcoming payments would be symbolic – since Russia has not defaulted since 1998 – Deutsche Bank economists noted that nonpayments will likely begin a 30-day grace period granted to issuers before defaults are officially triggered.

Jim Reid, global head of credit strategy at Deutsche Bank, stated in Monday’s email that “Thirty-days still allows time for there to be an negotiated end to war” and added, “This probably isn’t yet the moment when we see the full stress in the financial system,”.

Market losses have already reached a significant level with the news breaking or writing downs. This is a story you should be following.

Russian assets prices in defaults

Since the imposition of sanctions against central banks, financial institutions and investors, trading in Russian debt was almost stopped. Clearing exchanges and government actions also resulted in most positions being frozen.

Ashok Bhatia is the deputy chief investment officer in fixed income at Neuberger Berman. He stated that for some time investors may not be able access Russian liquidity. Bhatia stated that Russian government securities have been priced in default scenarios, which Neuberger- Berman strategists consider a probable outcome.

He said that Russia doesn’t seem to want hard currency for the repayment of these securities right now, but that we are expecting a large portion of this debt “grace periods” over the following month.

“Russian hard currency sovereign securities are indicated at 10 – 30 cents on the dollar and will likely remain there.”

Bhatia stated that energy prices are the main macroeconomic risk from Ukraine’s conflict. However, the impact on global credit markets and the recent volatility in asset classes will remain “relatively mild”.

“But, given that Russian securities were repriced to default level levels, we believe these immediate effects are largely over,” said he.

“Debatates over the economic impact and responses of central banks will now be front and center.”