By Mehnaz Yasmin

(Reuters) – The price to insure Goldman Sachs bonds (NYSE:). Morgan Stanley (NYSE: Citigroup (NYSE:) Against default reached two-year highs Monday due to growing concerns that the aggressive U.S. Federal Reserve moves to control inflation will tip the economy into recession.

The Ukraine crisis has caused credit risk to worsen as many major U.S. bank took a big hit to their mainstay business. With capital market activity slowing down, lending will likely remain low.

Bondholders have been urged to look into hedging strategies as a way to prevent defaults.

According to the OECD, war in Ukraine or Western sanctions could reduce global growth by more than 1% and increase inflation by two-and-a-half percentage points.

JP Morgan Chase (NYSE:) & Co, Goldman Sachs and Citigroup combined put aside a $3.36 billion in credit loss reserves in the first quarter. It is a complete reverse of what happened in the last 12 months where lenders had released trillions of dollars worth reserves to cover losses due to COVID-19.

Spreads on 5-year credit default swaps (CDS), for Goldman Sachs and Morgan Stanley closed on Monday at $108.92. Citigroup was at $107.94. This is the highest they have been in over two years.

CDS, a contractual arrangement that permits buyers to swap credit risks with sellers, insures bondholders and protects them against default.

Spreads on JP Morgan five-year CDS Wells Fargo Bank of America Corp and the NYSE: (NYSE) look poised to reach near-two-year highs, as well.

According to Thomas J. Hayes (chairman at Great Hill Capital, New York), “Any spike in CDS in U.S. banks in the short term is probably related to fears about a Russian default.”

Correlation coefficient between Russia’s 5-year CDS and Russia ()The correlation between sovereign debt and banks’ CDS was between 0.5 to 0.6 for the five-months ended May, which suggests a positive correlation.

The Wednesday ruling by a panel of derivatives experts has indicated that Russia is in default. Russia missed a due date for April 4, in U.S. dollar, on its two sovereign bonds. It also brought the payout on default insurance worth billions closer.