The Moral Quandary Of Russian Debt

The country is fast becoming a case study in distressed investing. Who’s buying? Capitalism’s finest

- Erik Schatzker

Wall Street doesn’t usually let moral dilemmas get in the way of making money. There’s almost always a bidder for whatever security is on offer, no matter how dodgy the issuer, how funky the structure, or how unpleasant the circumstances. Russian President Vladimir Putin’s invasion of Ukraine is no exception.

Even before the missiles started raining down on Kyiv, the financial opportunists who prey on market dislocation were already hunting for bargains in Russian bonds. They had plenty to choose from. Almost all of Russia’s debt, both sovereign and corporate, remains open for trading under U.S. economic sanctions. And, because demand has collapsed, the yields on all that paper are now among the highest in the world.

One government bond that matures in September 2023 was recently quoted at 48¢ on the dollar. If Russia honors its foreign debt—and so far it has—anyone who buys today stands to earn a return of at least 108% in only 18 months.

Needless to say, there’s no small amount of risk involved. The battle for Ukraine may drag on for months, if not years. The theater of war may expand to include NATO members. Putin may resort to chemical or nuclear weapons. But what if buying Russian debt is a risk worth taking? While the world recoiled in horror at the sight of bombed-out hospitals and civilians sprawled dead in the streets, many hedge fund managers asked that question and salivated at the thought of a payday so huge it could be the biggest in a generation.