Russia is due to make a key interest rate payment on its foreign debt on Wednesday, but with sanctions strangling its economy, Moscow is threatening to repay international bondholders in rubles. Finance Minister Anton Siluanov pointed to measures that have frozen nearly half of Russia's $643B in foreign reserves, as well as the heavy strain on its financial system. Moscow is specifically set to make a combined $117M in interest payments on two dollar-denominated bonds - which are currently trading at $0.20 on the dollar - though neither of them are allowed to be repaid in rubles.

Snapshot: It will be up to the ratings agencies to consider if this will be deemed a default, given the numerous technical factors that go into the classification. Russia also has a 30-day grace period after the coupon payments come due, so it will be at least another few weeks before a formal default could be declared. The ruble has already collapsed by more than 40% since the invasion of Ukraine on Feb. 24, and this time around there won't be any help from the West.

"In terms of servicing debt obligations, I can say that no longer we think of Russian default as improbable event," said IMF Director Kristalina Georgieva. "Russia has the money to service its debt, but cannot access it." A "deep recession" is in store for the country, she added, though it's unlikely to trigger a global financial crisis as banks' global exposure to Russia is "definitely not systemically relevant."

On the ground: A Russian airstrike on a Ukrainian military training center just 10 miles from the Polish border killed 35 people early Sunday. Following the attack, the U.S. warned of full NATO response if Poland is hit, while American journalist Brent Renaud was shot dead in a northwest suburb of Kyiv. Fighting has intensified around the capital over the past week, while Russian forces continue to bombard cities across the country.

Treasury trouble

The rout in Treasuries is picking up speed as inflationary fears spur forecasts for an abrupt shift towards aggressive monetary tightening. The 10-year yield climbed 9 basis points overnight to 2.09%, touching a level last seen in July 2019. That's ahead of start of the FOMC's March meeting tomorrow, where interest rates are expected to rise by 25 bps and Jay Powell will be drilled on the pace of the coming tightening cycle following the release of the latest "dot plot."

Bigger picture: After Russia's invasion of Ukraine in late February, traders poured into safe-haven assets like Treasuries, but that didn't last long. Markets are now pricing in rate hikes at each of the Fed's subsequent meetings for 2022, meaning another six increases this year. Government bonds in Europe were also stung last week after the ECB cut its growth forecasts and raised inflation predictions against the backdrop of the war in Ukraine.

"It's a mixture of positioning and illiquidity," noted Eugene Leow, rates strategist at DBS Bank in Singapore. "It makes sense to turn bearish on Treasuries based on fundamentals and what the Fed is communicating."

Go deeper: Hedge funds are expanding bearish wagers on the Treasury market, according to the Commodity Futures Trading Commission, with net short bets across the curve hitting the highest level since April 2020. (5 comments)

Fuel surcharges

The recent surge in gas prices is prompting Uber (NYSE:UBER) to add a "temporary fuel surcharge" to fares across the country, which will be in effect "for the next 60 days." The fees will go directly to drivers and couriers, who are responsible for paying for the gas they use. The new pricing is set to begin Wednesday, though Uber will "continue to monitor gas prices and may make additional changes."

By the numbers: "Rides customers will pay a surcharge of either $0.45 or $0.55 on each Uber trip, and Eats customers will pay either $0.35 or $0.45 on each Uber Eats order, depending on their location," Uber wrote in a blog post.

The ride-hailing giant was also quick to highlight the benefits of switching to an electric vehicle. Drivers who drive BEVs receive extra incentives, such as $1 more per trip up to $4,000 annually through Uber's Green Future Program. Moreover, U.S. drivers are eligible to receive $6,000 off the Nissan LEAF, discounted pricing for other EVs, as well as incentives related to home charging installation.

Prices at the pump: The national average for a gallon of gas currently stands at $4.32 per gallon, according to data from AAA, compared with nearly $2.85 a year ago. In California, the largest market for gig work in the U.S., the price of gas is now $5.74 per gallon on average. (7 comments)

Supply chain risk

COVID restrictions have come to an end in many parts of the world as governments establish "live with the virus" policies, but one nation stands out in this regard: China. The country has continued to pursue a "zero-COVID" strategy, imposing strict lockdowns and containment measures to prevent viral transmission among its population. However, a growing wave of local cases is seeing authorities double down on the policy and that's getting investors nervous about the economy.

What happened? China just placed the 17.5M residents of Shenzhen into lockdown for at least a week, which will be accompanied by three rounds of city-wide testing. All bus and subway systems were closed, while businesses, barring those that provide essential services, have been shuttered. The decision resulted in Foxconn (OTC:FXCOF), a key Apple (NASDAQ:AAPL) supplier, to halt production as the virus spreads across the technology hub. Shenzhen also features the headquarters of tech giants Huawei, Tencent (OTCPK:TCEHY) and EV maker BYD (OTCPK:BYDDY).

Similar measures are impacting Hong Kong, Shanghai and other regions as a spike in coronavirus infections leads to a worsening outbreak. The Hang Seng Index (HSI) plunged 5% overnight, shares in Shanghai dropped more than 2%, while the bad news keeps piling up as U.S. officials said Russia asked China for military assistance for its war in Ukraine. The developments could also compound supply chain disruptions that have contributed to a rise in global inflation.

Analyst commentary: "The COVID situation in China has deteriorated at an alarming pace over the past week, but abandoning zero-COVID now could be perceived as conceding that the strategy did not work in the first place," said Ting Lu, chief China economist at Nomura. "With the much worsening pandemic and Beijing's resolution in maintaining its [zero-COVID strategy], we believe China's 'around 5.5%' GDP growth target this year is becoming increasingly unrealistic." (22 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong -5%. China -2.6%. India +1.7%.
In Europe, at midday, London +0.5%. Paris +1.9%. Frankfurt +2.8%.
Futures at 6:20, Dow +1.2%. S&P +1.1%. Nasdaq +0.9%. Crude +5.2% to $103.70. Gold -0.9% to $1967.80. Bitcoin +0.5% to $39,093.
Ten-year Treasury Yield +9 bps to 2.09%

Today's Economic Calendar

No events scheduled

Companies reporting earnings today »

What else is happening...

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Videogame sales drop for fourth month amid hardware slowdown.

JD.com (JD) to buy courier company Deppon Logistics for $1.4B.

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