By Rodrigo Campos and Davide Barbuscia
NEW YORK, May 2 (Reuters) - Russia may have averted default as it announced it had made several overdue payments in dollars on its overseas bonds, shifting the market's focus to upcoming payments and whether it would stave off a historic default.
Russia's $40 billion in international bonds and the chance of a default have become the focus of global financial markets since it was hit with sanctions from the United States and its allies after its invasion of Ukraine in late February.
Dubbed a "special military operation" by Russia, the invasion has turned Russia into a pariah, including in financial markets, and has entangled its ability to pay its debts.
The chance of default dramatically increased in early April when the United States stopped the Russian government from using frozen reserves to pay some $650 million to its bondholders.
With the end of a grace period on those payments looming, Russia's finance ministry said on Friday it had paid, in dollars, $564.8 million of coupon and redemption obligations on a bond maturing in 2022 and a coupon payment of $84.4 million on another due in 2042.
The announcement surprised markets that had been gearing up for a default at the end of the grace period on Wednesday, which would have been Russia's largest major external default in over a century.
WHAT HAPPENED ON APRIL 29?
The Russian finance ministry announced it paid nearly $650 million it owed holders of two of its dollar bonds. Two creditors told Reuters they had not yet seen the money in their accounts, but a senior U.S. government official confirmed that the payments had been made and that the source appeared to be outside the limits of the current sanctions.
The Credit Derivatives Determinations Committee, representing major global banks and asset managers, met on Friday and acknowledged the reports of Russia's payments, but nonetheless made plans for a credit default swap auction next week "solely in order to prepare for the possibility of a Failure to Pay Credit Event."
WHAT WAS THE MARKET REACTION?
Russian bond prices jumped higher according to traders, in some cases by 15 cents, nearly doubling in price. Bonds of major still-unsanctioned companies such as Gazprom, Lukoil and telecoms firm VimpelCom were quoted up 2-5 cents too.
Insurance against Russia's default got less expensive, with five-year credit default swaps (CDS) linked to Russia’s sovereign debt down to 64.333% upfront from 76.4% upfront on Thursday, according to S&P Global Market Intelligence.