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A Controversial Russian Bond Arbitrage Is Minting Near-Guaranteed Profits

  • Hedge funds are split over whether it’s worth getting involved
  • So-called negative-basis trade too good for some to pass up
Bloomberg business news
Russia’s $1.45 Billion Bond Buyback

The pitch from Wall Street sales desks to clients goes something like this: Block out the horrors of the war in Ukraine, and focus on the trading opportunity it has created. Years, even decades could go by, one hedge-fund firm recalls being told, before another relative-value trade this attractive comes along.

For those comfortable with step one, the bet has indeed racked up quick gains. Known as a negative-basis trade, at its core it takes advantage of the near-unprecedented selloff in Russian debt since Vladimir Putin’s widely condemned invasion. It involves buying beaten down government or corporate bonds along with corresponding credit-default swaps, which insure the debtholder in the event of non-payment.