Russia says it will use rubles to pay dollar bonds after the US ended a sanctions waiver

• Russia will use rubles to pay dollar bonds after the US let a key sanctions exemption expire Wednesday.
• The Treasury previously allowed Moscow to send dollar payments through the US financial system.

Russia said it will now service its dollar bonds using rubles after the US let a key sanctions waiver expire Wednesday.

According to the finance ministry, ruble payments will go to foreign investors' type "C" accounts, which will require registration with Russia's National Settlement Depository to access the funds.

The Treasury previously had allowed Moscow to send dollar payments through the US financial system to bond holders as part of a carve-out to the sanctions it imposed after Russia invaded Ukraine.

But the Treasury's Office of Foreign Assets Control said late Tuesday it would let the exemption expire Wednesday — meaning the chances of a Russian default have jumped. Ratings agencies have said ruble payments for dollar-denominated debt would constitute a default.

Russia is staring down an "artificial situation created by an unfriendly nation," Finance Minister Anton Siluanov said in a statement. "We have the money and willingness to pay."

He added that the current situation isn't comparable to Russia's default on roughly $40 billion of its local bonds in 1998, when Moscow didn't have enough funds to pay.

Until now, the US sanctions waiver had allowed Russia to keep up with bond payments amid wartime sanctions. At the beginning of May, it narrowly avoided a historic default after a clearinghouse processed its payments at the very last moment.

Timothy Ash, a BlueBay Asset Management economist, said it was "remarkable" that Russia appeared to have avoided the default, as all signs pointed toward catastrophe in April.

Russia must pay roughly $100 million in foreign debt payments on Friday but transferred the funds last week in anticipation of the sanctions waiver expiring, Bloomberg reports.