The Russian government stands on the edge of defaulting on its sovereign debts for the first time since 1998, and international sanctions may complicate how creditors are compensated by nearly $6 billion of credit derivatives contracts if Russia fails to pay what they are owed, WSJ Pro Bankruptcy reported. Those derivative contracts, called credit default swaps, are meant to help investors insure they will receive near full compensation in case one of their underlying bonds defaults. There is approximately $4.5 billion of credit default swaps tied specifically to the Russian government, and an additional $1.5 billion located inside derivative indexes, according to JPMorgan Chase & Co. The cost of buying a five-year contract for protection against a Russian government default has skyrocketed since the beginning of February from around 5% of the total value of the debt to be insured to 46% as of March 4, according to data from ICE Data Services. ICE is the main clearinghouse for European credit default swaps.
