Russian Default Risk Jumps

After yesterdays 13% drop the Russian stock market remains closed today.

But, the rest of the world keeps trading… and the speculative attack on Russia continues.

It wasn’t too long ago that a confident Russian Bear flush with easy commodity bling threw caution to the wind and strutted into Georgia to establish dominance in the region.

(I first mentioned problems in the Russian banking sector on October 12th, 2007 in Russian Winter?)

To say Russia has quickly been humbled would be an understatement. After a brief period of complete shock, expect a sudden outburst of absolute rage from the Russian people and Russian politicians as they squarely lay the blame for their instant fall from grace on ‘the West’. Unfortunately Russia's regional neighours are likely to bear the brunt of that blind rage.

The future will not be pretty.

Russia Debt Risk Jumps After `Clumsy' Ruble Widening, Rate Rise: “The cost of protecting against a default by Russia soared after the central bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows.

Credit-default swaps on Russian government bonds jumped to 7.87 percent of the amount insured from 6.14 percent yesterday, according to CMA Datavision prices. The yield on its 30-year dollar bonds increased to 10.77 percent from 9.1 percent, according to Bloomberg prices.

The central bank's widening of its ruble target against a basket of dollars and euros by 1 percent yesterday “achieved nothing” and cost almost $7 billion of the nation's foreign- currency reserves, according to analysts at Renaissance Capital. Russia joins Hungary, Iceland and Pakistan among a handful of central banks raising interest rates to stem currency losses, as the rest of the world cuts the benchmarks to spur lending.

“The current pressures have largely been provoked by the central bank itself, whose recent clumsy steps in the currency market triggered a new speculative attack on the ruble,” analysts led by Alexei Moisseev at Renaissance in Moscow said in a report today.

Russia has drained more than 20 percent of its currency reserves, the world's third largest, to stem a 15 percent slide in the ruble against the dollar since the start of August as investors withdrew about $147 billion, according to BNP Paribas SA data to Nov. 10.

Fitch Ratings and Standard & Poor's said they may downgrade the nation's debt because the slide in reserves. The total at $484.7 billion remains more than double the combined international reserves of the eurozone nations.”

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