The sell-off of Russian debt associated with Russian President Vladimir Putin’s campaign on Ukraine and the sanctions that ensued have created a window for a new type of arbitrage that some in the finance world are gobbling up, seeing it as easy money.
The idea is what’s known as a negative-basis trade, or purchasing dirt-cheap Russian government or corporate bonds along with credit-default swaps, which act as insurance on the potential default of a borrower.
Data from the website MarketAxess shows that Russian sovereign debt traded at a volume of $7 billion between February 24 and April 7, up from $5 billion in the same period in 2021 — a 35% uptick.
Russian bonds are trading furiously, said Philip M. Nichols, an expert on Russia and social responsibility in business and a professor at the University of Pennsylvania’s Wharton School. “There’s a lot of speculators that are buying up these bonds that have been severely downgraded…
