Data from the MarketAxess website shows that $7 billion of Russian sovereign debt was traded between February 24 and April 7, compared to $5 billion during the same period in 2021, an increase of 35%.

Nichols, an expert on Russia and social responsibility in business and a professor at the Wharton School at the University of Pennsylvania, said Russian bonds are trading like crazy. “There are a lot of speculators buying these heavily downgraded bonds and they are about to become junk,” he said.

Nichols says he gets constant calls from analysts wanting to know if a potential trade makes sense. “The spread on Russian sovereign debt is staggering right now,” he said. “They make an extraordinary amount of money relative to the size.”

The cost of insuring Russian debt rose to 4,300 basis points on April 5, from 2,800 the day before.

“It’s Wall Street,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “It doesn’t surprise me that they saw some sort of loophole that they could exploit to make money.”

JPMorgan representatives say they act as middlemen, simply seeking customer support. “As a market maker, we help our clients reduce their risk and manage their exposure to Russia in the secondary markets. None of the deals violate sanctions or benefit Russia,” a company spokesperson said.

If clients want to quickly eliminate their exposure to Russia, they can turn to a Russian oligarchy that will happily buy up sovereign bonds, said Robert Tip, senior investment analyst and head of global bonds at PGIM Fixed Income. Selling Russian debt to US hedge funds keeps any accrued interest out of Russian hands.

The trade is legal and profitable, Nichols said, but is highly speculative and subject to significant fluctuations depending on news of the Russian invasion of Ukraine and new sanctions.

It also illustrates a worrying disconnect between Wall Street and the real state of the global economy: Investors typically base their assessment of Russian debt on whether or not it will be repaid, and the likelihood of it being repaid depends on of the force. the resilience of the Russian economy.

But that does not happen. The new sanctions imposed by the US Treasury on Tuesday, which blocked Russia’s access to all the dollars it holds in US banks, have significantly increased the chances that Russia will default on its debt and its domestic product. crude, the primary measure of a country’s economic growth strength, would significantly increase the risks of Russia defaulting on its debts. bog down.

The US Congress voted this week to rescind Russia’s most favored state trading status, a major economic cut that would pave the way for tougher sanctions and import controls on essential goods from Russia. , such as chemicals and steel.

Nichols said removing the status would end Russia’s integration into the global economy. He added that if Wall Street was connected to the real world, it wouldn’t want to be close to Russian debt.

“Russian debt is a high-risk area, and institutions should probably stay away,” Nichols said.