Russian bonds cut to one level above junk, sending everything from stocks to ruble skidding

April 2014FINANCE Russian bonds slid, sending yields to a six-week high, after Standard & Poor’s cut the nation’s credit rating to one level above junk. A surprise interest-rate increase failed to prop up the ruble. The yield on government debt due February 2027 jumped 35 basis points to 9.71%, taking this week’s climb to 71 basis points, at 4:02 p.m. in Moscow. The ruble lost 0.8% to 42.2567 versus the central bank’s target dollar-euro basket even as policy makers raised the one-week auction rate to 7.5% from 7%. Russia’s credit risk rose to the highest in more than two years and the Micex stock index slid 1.1%, capping the worst week since the five days to March 14. The rate increase, which was predicted by only one of 23 economists in a Bloomberg survey, failed to stem a selloff that has picked up pace as an accord to disarm separatists in east Ukraine unravels. S&P reduced Russia’s rating to BBB- from BBB, saying more downgrades are possible if the economy deteriorates and the U.S. and Europe expand sanctions. “What we’re seeing now is a pretty permanent exodus from Russia,” Lars Christensen, chief emerging market analyst at Danske Bank Danske Bank A/S in Copenhagen, said by phone. “It will be very difficult for the Russian central bank to fight it because a consequence of this is a further drop in economic activity. Given the geopolitical risk, given that this shock has been of a permanent nature, I think the S&P downgrade is fully justified.”
The ruble initially trimmed declines against the dollar before resuming its retreat, the biggest today among 24 emerging-markets monitored by Bloomberg. The exchange rate depreciated 0.7% versus the greenback to 36.0350, erasing its gain since Russian President Vladimir Putin’s intervention in Crimea started on March 1. Putin’s annexation of the Black Sea peninsula later that month triggered the worst standoff against the U.S. and Europe since the collapse of the Soviet Union, leaving policy makers to struggle with an economy on the brink of recession and an inflation rate above the central bank’s target for a 19th month. Credit-default swaps insuring Russian debt against non- payment climbed as much as 18.5 basis points to 284 after the S&P cut, the highest since January 2012, before trading at 276.5 at 10 a.m. in London. Last month, Russia was placed on review for a downgrade by Moody’s Investors Service and Fitch Ratings cut its outlook to negative. –Financial Post
This entry was posted in Age of Decadence, Arms Race, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Conflict Among Nations, Currency - Economic warfare, Economic Collapse, Fiat Money Printing Fiasco, Flashpoint for war, Geopolitical Crisis, Infrastructure collapse, New World Order, Political turmoil, Preparation for War, Resource War, Social Meltdown, Squandered Resources, Surveillance - Police State, The Pyramid Model, Troubled Banks, Unsustainable Debt Burden. Bookmark the permalink.

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